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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, 1998
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)
-----------------------
DELAWARE 13-3434400
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR 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
-------------- ------------------------
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, 1999 was approximately $1,750,009,257.
The number of Units representing assignments of beneficial ownership of
limited partnership interests outstanding as of March 1, 1999 was 170,567,163
Units.
DOCUMENTS INCORPORATED BY REFERENCE
Certain pages of the Alliance Capital Management L.P. 1998 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, 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.
"Investment Advisers Act" refers to the Investment Advisers Act of
1940.
"Investment Company Act" refers to the Investment Company Act of
1940.
"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, Item 8 and Item 11.
As of March 1, 1999 AXA, ECI, Equitable and certain subsidiaries of
Equitable were the beneficial owners of 96,613,481 Units or approximately 56.6%
of the issued and outstanding Units. As of March 1, 1999 AXA and its
subsidiaries owned approximately 58.4% 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. See "Item 12. Security
Ownership of Certain Beneficial Owners and Management".
1
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, the Asia/Pacific area,
and, to a lesser extent, in Africa and South America. 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.
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 institutional
investors 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 subsidiary, 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.
The following tables provide a summary of assets under management and
associated revenues of the Partnership:
Assets Under Management
-----------------------
(in millions)
December 31,
--------------------------------------------------------------------
1994 1995 1996 1997 1998
Separately Managed Accounts (1)(4)...... $81,030 $97,275 $119,507 $133,706 $168,121
Mutual Funds Management (4):
Alliance Mutual Funds................. 20,595 23,134 27,624 40,376 60,722
Variable Products .................... 8,501 12,292 17,070 23,830 31,364
Cash Management Services (2).......... 9,153 13,820 18,591 20,742 26,452
------- ------- -------- -------- --------
Total................................... $119,279 $146,521 $182,792 $218,654 $286,659
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Revenues
--------------
(in thousands)
Years Ended December 31,
---------------------------------------------------------------------
1994 1995 1996 1997 1998
Separately Managed Accounts (1)......... $212,500 $232,132 $280,909 $322,850 $ 373,018
Mutual Funds Management:
Alliance Mutual Funds................. 292,040 277,815 327,769 432,520 674,234
Variable Products (3)................. 21,980 29,632 44,967 67,805 93,174
Cash Management Services (2).......... 69,514 91,135 127,265 146,152 174,829
Other.................................... 4,918 8,541 7,607 6,009 8,801
------- ------- -------- -------- ---------
Total.................................... $600,952 $639,255 $788,517 $975,336 $1,324,056
-------- -------- -------- -------- ----------
-------- -------- -------- -------- ----------
(1) Includes the general and separate accounts of Equitable and its
insurance company subsidiary.
(2) Includes money market deposit accounts brokered by the Partnership
for which no investment management services are performed.
2
(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 exclude certain non-discretionary advisory
relationships and reflect 100% of the assets managed by
unconsolidated joint venture subsidiaries and affiliates.
SEPARATELY MANAGED ACCOUNTS
As of December 31, 1996, 1997 and 1998 separately managed accounts for
institutional investors and high net-worth individuals (other than investment
companies and deposit accounts) represented approximately 65%, 61% and 59%,
respectively, of total assets under management by the Partnership. The fees
earned from the management of these accounts represented approximately 36%, 33%
and 28% of the Partnership's revenues for 1996, 1997 and 1998, respectively.
Separately Managed Accounts Assets Under Management(1)
---------------------------------------------------
(in millions)
December 31,
----------------------------------------------------------------
1994 1995 1996 1997 1998
Equity & Balanced:
Domestic......................... $30,457 $42,706 $51,292 $61,259 $87,032
International & Global........... 3,828 3,854 10,903 7,883 7,370
Fixed Income:
Domestic......................... 31,470 32,553 36,042 39,079 41,911
International & Global........... 2,602 1,891 2,381 2,759 4,030
Passive:
Domestic......................... 9,645 12,787 15,478 19,860 23,050
International & Global........... 3,028 3,484 3,411 2,866 4,728
------- ------- -------- -------- --------
Total.............................. $81,030 $97,275 $119,507 $133,706 $168,121
------- ------- -------- -------- --------
------- ------- -------- -------- --------
(1) Includes 100% of the assets managed by unconsolidated joint venture
subsidiary and affiliated companies of $432 million at December 31, 1998
and $203 million at December 31, 1997.
Revenues From Separately Managed Accounts Management
----------------------------------------------------
(in thousands)
Years Ended December 31,
----------------------------------------------------------------
1994 1995 1996 1997 1998
Investment Services:
Equity & Balanced:
Domestic......................... $108,645 $132,802 $157,511 $184,200 $238,063
International & Global........... 10,867 10,373 32,453 30,192 16,371
Fixed Income:
Domestic......................... 70,217 67,102 65,449 80,600 89,286
International & Global........... 5,180 3,784 5,392 7,007 7,968
Passive:
Domestic......................... 6,016 5,919 8,015 9,187 9,911
International & Global........... 4,052 3,870 3,612 3,034 2,997
-------- -------- -------- -------- --------
204,977 223,850 272,432 314,220 364,596
Service and Other Fees............. 7,523 8,282 8,477 8,630 8,422
-------- -------- -------- -------- --------
Total.............................. $212,500 $232,132 $280,909 $322,850 $373,018
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
3
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 institutional investors 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, 1998 the Partnership's accounts were managed by 135 portfolio
managers with an average of 16 years of experience in the industry and 10 years
of experience with the Partnership.
EQUITY AND BALANCED ACCOUNTS. The Partnership's equity and balanced
accounts contributed approximately 24%, 22% and 19% of the Partnership's total
revenues for 1996, 1997 and 1998, respectively. Assets under management relating
to active equity and balanced accounts grew from approximately $32.8 billion as
of December 31, 1993 to approximately $94.4 billion as of December 31, 1998.
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 9%, 9% and 7% of the Partnership's total revenues for
1996, 1997 and 1998, respectively. Assets under management relating to active
fixed income accounts increased from approximately $30.8 billion as of December
31, 1993 to approximately $45.9 billion as of December 31, 1998.
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 which invest 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.
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). As
of December 31, 1998 the Partnership managed
4
approximately $27.8 billion in passive portfolios.
PRIVATE INVESTING SERVICES. In 1996 the Partnership acquired a minority
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 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 $199.4 million under
management as of December 31, 1998. As of that date Equitable and its insurance
company subsidiary had investments of approximately $40.0 million in these
funds.
STRUCTURED PRODUCTS. The Partnership manages 24 structured products
with an aggregate of $8.2 billion in assets as of December 31, 1998. $5.4
billion of these assets are included in mutual fund assets under management and
$2.8 billion are included in separately managed assets under management as of
December 31, 1998. 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, 1998, had an aggregate
of $4.1 billion in assets under management. 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, 1998 these funds
had approximately $148.0 million under management. As of that date ECI and its
insurance company subsidiaries had investments of approximately $140.0 million
in these funds.
HEDGE FUNDS. As of December 31, 1998, the Partnership managed hedge
funds which had approximately $1.2 billion in assets under management and
separately managed hedge accounts which had approximately $0.9 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.
CLIENTS
The approximately 1,889 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 subsidiary, endowments, foundations, foreign
governments, multi-employer pension plans and financial and other institutions.
The general and separate accounts of Equitable and its insurance
company subsidiary, the management of 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, 1998 AXA and the general and separate accounts, including
investments made by these accounts in The Hudson River Trust (See "Individual
Investor Services - The Hudson River Trust"), represented approximately 22%, 26%
and 27% of total assets under management by the Partnership at December 31,
1998, 1997 and 1996, respectively, and approximately 11%, 14% and 13% of the
Partnership's total revenues for 1998, 1997 and 1996, respectively.
As of December 31, 1998 corporate employee benefit plan accounts
represented approximately 12% of total assets
5
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, 1998.
The following table lists the Partnership's ten largest institutional
clients, ranked in order of size of total assets under management as of December
31, 1998. 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
----------------------------- ---------------
AXA, Equitable and their subsidiaries............. Equity, Fixed Income,
Passive, Global Equity,
Global Fixed Income
North Carolina Retirement System.................. Passive Equity, U.S.
Equity, Global Equity
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
Frank Russell Trust............................... U.S. Equity
BellSouth Corporation............................. Passive Equity
Foreign Government Central Bank................... U.S. Fixed Income,
Global Fixed Income,
U.S. Equity, Global
Equity, Asian Equity
Nuclear Electric Insurance Ltd.................... Passive
Sun America....................................... Equity
These institutional clients accounted for approximately 25% of the
Partnership's total assets under management at December 31, 1998 and
approximately 9% of the Partnership's total revenues for the year ended December
31, 1998 (35% and 15%, 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 subsidiary accounted for
more than approximately 1% of the Partnership's total revenues for the year
ended December 31, 1998. AXA and the general and separate accounts of Equitable
and their insurance company subsidiaries accounted for approximately 12% of the
Partnership's total assets under management at December 31, 1998 and
approximately 6% of the Partnership's total revenues for the year ended December
31, 1998 (22% and 11%, 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
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
6
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 .50% 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
subsidiary the Partnership provides ancillary accounting, valuation,
reporting, treasury and other services. Equitable and its insurance company
subsidiary 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 subsidiary,
and other funds which serve as funding vehicles for variable annuity insurance
and variable life insurance products offered by other insurance companies
("Variable Products"), (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, (iv) manages and sponsors certain structured products, and (v)
manages and sponsors certain hedge funds. The net assets comprising the Alliance
Mutual Funds, Variable Products, money market funds and deposit accounts,
structured products and hedge funds on December 31, 1998 amounted to
approximately $118.6 billion. The assets of the Alliance Mutual Funds, Variable
Products, money market funds, structured products and hedge funds are managed by
the same investment professionals who manage the Partnership's accounts of
institutional investors and high net-worth individuals.
7
Revenues From Mutual Funds Management
-------------------------------------
(in thousands)
Years Ended December 31,
---------------------------------------------------------------------
1994 1995 1996 1997 1998
Alliance Mutual Funds (1):
Investment Services.............. $147,661 $147,036 $173,260 $235,613 $389,839
Distribution Revenues............ 120,896 107,012 128,917 167,321 241,948
Shareholder Servicing Fees....... 16,054 16,558 19,156 22,957 36,230
Other Revenues................... 7,429 7,209 6,436 6,629 6,217
-------- -------- -------- -------- --------
292,040 277,815 327,769 432,520 674,234
-------- -------- -------- -------- --------
Variable Products:
Investment Services (2).......... 21,490 29,051 43,901 66,376 91,506
Distribution Revenues............ 91 203 551 772 730
Shareholder Servicing Fees....... 49 12 15 16 18
Other Revenues................... 350 366 500 641 920
-------- -------- -------- -------- --------
21,980 29,632 44,967 67,805 93,174
-------- -------- -------- -------- --------
Cash Management Services:
Investment Services (3).......... 42,018 56,642 74,441 82,770 107,051
Distribution Revenues............ 18,104 23,328 39,481 48,758 59,168
Shareholder Servicing Fees....... 8,398 9,951 12,085 13,354 7,227
Other Revenues................... 994 1,214 1,258 1,270 1,383
-------- -------- -------- -------- --------
69,514 91,135 127,265 146,152 174,829
-------- -------- -------- -------- --------
Total.............................. $383,534 $398,582 $500,001 $646,477 $942,237
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
(1) Includes fees received by the Partnership in connection with
certain structured products, hedge funds and wrap fee accounts.
(2) 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.
(3) Includes fees received by the Partnership in connection with its
distribution of money market deposit accounts for which no
investment management services are provided.
8
ALLIANCE MUTUAL FUNDS
The Partnership has been managing mutual funds since 1971. Since then,
the Partnership has sponsored open-end load mutual funds and closed-end mutual
funds (i) registered as investment companies under the Investment Company Act
("U.S. Funds"), and (ii) which are not registered under the Investment Company
Act and which are not publicly offered to United States persons ("Offshore
Funds"). On December 31, 1998 net assets in the Alliance Mutual Funds totaled
approximately $60.7 billion.
Net Assets as
of December 31, 1998
--------------------
Type of Alliance Mutual Funds (in millions)
- -----------------------------
U.S. Funds - Open-End:
Equity and Balanced........................... $24,684.0
Taxable Fixed Income.......................... 7,071.6
Tax Exempt Fixed Income....................... 3,055.6
Offshore Funds (Open and Closed-End):
Taxable Fixed Income.......................... 13,287.9
Equity and Balanced........................... 2,674.9
Wrap Fee Programs............................... 5,022.3
U.S. Funds - Closed-End......................... 3,534.5
Joint Venture Subsidiaries and Affiliates (1) 1,391.5
---------
Total........................................... $60,722.3
---------
---------
(1) Assets under management exclude certain non-discretionary
advisory relationships and reflect 100% of the assets managed
by unconsolidated joint venture subsidiaries and affiliates.
9
VARIABLE PRODUCTS
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 subsidiary. The Alliance Variable Products Series Fund is a
funding vehicle for variable annuity and variable life insurance products
offered by other unaffiliated insurance companies. On December 31, 1998 the net
assets of the portfolios of the Variable Products totaled approximately $31.4
billion:
Net Assets as
of December 31, 1998
--------------------
(in millions)
Hudson River Trust:
Common Stock Portfolio.................. $12,896.1
Aggressive Stock Portfolio.............. 4,500.8
Growth Investors Portfolio.............. 2,055.1
Balanced Portfolio...................... 1,936.4
Equity Index Portfolio.................. 1,690.6
Global Portfolio........................ 1,408.2
Money Market Portfolio.................. 1,110.0
Growth & Income Portfolio............... 998.3
High Yield Portfolio.................... 612.4
Conservative Investors Portfolio........ 388.1
Quality Bond Portfolio.................. 322.4
Small Cap Growth Portfolio.............. 310.6
International Portfolio................. 212.3
Intermediate Government Portfolio....... 184.3
---------
28,625.6
Alliance Variable Products Series Fund....... 2,738.4
---------
Total........................................ $31,364.0
---------
---------
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 U.S. Funds and serves as a placing
or distribution agent for most of the Offshore Funds. There are 175 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
various options for the purchase of mutual fund shares, including the purchase
of Front-End Load Shares and Back-End Load Shares. The Front-End Load Shares are
subject to a conventional front-end sales charge paid by investors to AFD at the
time of sale. AFD in turn compensates the financial intermediaries distributing
the funds from the front-end sales charge paid by investors. For Back-End Load
Shares, investors do not pay a front-end sales charge although, if there are
redemptions before the expiration of the minimum holding period (which ranges
from one year to four years), investors pay a contingent deferred sales charge
("CDSC") to AFD. While AFD is obligated to compensate the financial
intermediaries at the time of the purchase of Back-End Load Shares, it receives
higher ongoing distribution fees from the funds. Payments made to financial
intermediaries in connection with the sale of Back-End Load Shares under the
System, net of CDSC received, reduced cash flow from operations by approximately
$232.5 million and $150.3 million during 1998 and 1997, respectively. Management
of the Partnership believes AFD will recover the payments made to financial
intermediaries for the sale of Back-End Load Shares from the higher distribution
fees and CDSC it receives over periods not exceeding 5 1/2 years.
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.
10
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 1998 the ten financial intermediaries responsible for the
largest volume of sales of open-end U.S. Funds and Variable Products were
responsible for 64% of such sales. EQ Financial Consultants, Inc. ("EQ
Financial"), 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 sales of shares of open-end U.S.
Funds and Offshore Funds (of 13%, 7% and 5% in 1996, 1997 and 1998). EQ
Financial 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 20%, 24% and 26% of open-end Alliance
Mutual Fund sales in 1996, 1997 and 1998, respectively. Citigroup Inc.
("Citigroup"), parent company of Salomon Smith Barney (formerly Smith Barney
Inc.), was responsible for approximately 9% of open-end Alliance Mutual Fund
sales in 1996, 7% in 1997 and 6% in 1998. Neither Merrill Lynch nor Citigroup 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 EQ Financial, Merrill Lynch and Citigroup
has in any year since 1993 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.
Based on industry sales data reported by the Investment Company
Institute (January 1999), the Partnership's market share in the U.S. mutual fund
industry is 1.18% of total industry assets and the Partnership accounted for
1.30% of total open-end industry sales in the U.S. during 1998. 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 1998 banks and their affiliates accounted for approximately 5% of the
sales of shares of open-end U.S. Funds and Variable Products.
INVESTMENT MANAGEMENT AGREEMENTS AND FEES. Investment management fees
from the Alliance Mutual Funds, the Hudson River Trust and the Variable Products
vary between .16% and 1.65% 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.
11
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 .67% to 4.49%. In connection with newly organized
U.S. Funds, the Partnership may also agree to reduce its fee or bear certain
expenses to limit expenses during an initial period of operations.
CASH MANAGEMENT SERVICES
The Partnership provides cash management services to individual
investors through a product line comprising 21 money market fund portfolios,
including one offshore money market fund domiciled in Cayman and three types of
brokered money market deposit accounts. Net assets in these products as of
December 31, 1998 totaled approximately $26.5 billion.
Net Assets
as of
December
31, 1998
-------------
(in millions)
Money Market Funds:
Alliance Capital Reserves (two portfolios).......... $10,910.7
Alliance Government Reserves (two portfolios)....... 7,173.9
ACM Institutional Reserves (five portfolios)........ 3,854.3
Alliance Municipal Trust (eight portfolios)......... 3,147.9
Alliance Money Market Fund (three portfolios)....... 785.9
ACM International Reserves (one portfolio).......... 58.9
Money Market Deposit Accounts (three products).......... 505.7
Joint Venture Subsidiaries and Affiliates (1)........... 14.8
---------
Total.................................................... $26,452.1
---------
---------
(1) Assets under management exclude certain non-discretionary advisory
relationships and reflect 100% of the assets managed by
unconsolidated joint venture subsidiaries and affiliates.
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 certain
money market funds, 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, 1998 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, 1998 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
12
the Investment Company Institute (December 1998), has increased from 1.31% of
total money market fund industry assets at the end of 1993 to 1.95% at
December 31, 1998.
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 1998 such
supplemental payments totaled approximately $58.0 million ($49.0 million in
1997). There are 7 employees of the Partnership who devote their time
exclusively to marketing the Partnership's cash management services.
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, 1998 the five largest participating financial
intermediaries were responsible for assets aggregating approximately $21.7
billion, or 82% 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, 1998 DLJ Securities Corporation and
these Pershing correspondents were responsible for approximately $18.2 billion
or 69% 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 "Mutual Funds Management -
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, 1998 AFS employed 301 people. AFS
operates out of offices in Secaucus, New Jersey, and San Antonio, Texas. 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 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, 1998 ACMFS employed 18 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.
13
YEAR 2000
Many computer systems and applications that process transactions use
two digit date fields for the year of a transaction, rather than the full
four digits. If these systems are not modified and replaced, transactions
occurring after 1999 may be processed as year "1900", which could result in
processing inaccuracies and inoperability at or after the Year 2000. The
Partnership utilizes a number of computer systems and applications that it
either has developed internally or licensed from third-party suppliers. In
addition, the Partnership is dependent on third-party suppliers for certain
systems applications and for the electronic receipt of information critical
to its business.
The Year 2000 issue is a high priority for the Partnership. During
1997, the Partnership began a formal Year 2000 initiative, which
established a structured and coordinated process to deal with the Year 2000
issue. As part of its initiative, the Partnership established a Year
2000 project office to manage the Year 2000 initiative focusing on both
information technology and non-information technology systems. The Year
2000 project office meets periodically with the Audit Committee of the
Board of Directors and executive management to review the status of the Year
2000 efforts. The Partnership has also retained the services of a number
of consulting firms which have expertise in advising and assisting with
regard to Year 2000 issues.
By June 30, 1998 the Partnership had completed its inventory and
assessment of its domestic and international computer systems and
applications, identified mission critical systems (those systems where loss
of their function would result in an immediate stoppage or significant
impairment to core business units) and nonmission critical systems and
determined which of these systems is not Year 2000 compliant. All
third-party suppliers of mission critical computer systems and
applications have been contacted to verify whether their systems and
applications will be Year 2000 compliant and their responses are being
evaluated. Substantially all of those contacted have responded and
approximately 76% have informed the Partnership that their systems and
applications are or will be Year 2000 compliant. Those who have not
responded have been contacted a second time. The Partnership estimates
that this process will be completed by the first quarter of 1999. The
same process is being performed for nonmission critical systems with
estimated completion by the second quarter of 1999.
The Partnership has remediated, replaced or retired most of its
noncompliant mission critical systems and applications. The Partnership
expects that the remediation phase for all mission critical systems will
be complete by February 28, 1999 with the exception of one portfolio
accounting system, which will be replaced by a Year 2000 compliant system
by August 31, 1999. The same process will be performed for nonmission
critical systems and is estimated to be completed by the second quarter of
1999.
After each system has been remediated, it is tested with 19XX dates
to determine if it still performs its intended business function
correctly. Next, each system undergoes a simulation test using dates
occurring after December 31, 1999. Inclusive of the replacement and
retirement of some of its systems, the Partnership has completed these
testing phases for approximately 88% of mission critical systems and
approximately 75% of nonmission critical systems. Integrated systems
tests will then be conducted to verify that the systems will continue to
work together. Full integration testing of all mission critical and
nonmission critical systems and testing of interfaces with third-party
suppliers will begin in the first quarter of 1999 and will continue
throughout 1999.
The Partnership is in the process of inventorying, evaluating and
testing its technical infrastructure and corporate facilities and expects
them to be fully operable in the Year 2000.
The Partnership has deferred certain other planned information
technology projects until after the Year 2000 initiative is completed.
Such delay is not expected to have a material adverse effect on the
Partnership's financial condition or results of operations.
The Partnership, with the assistance of a consulting firm, is
developing formal Year 2000 specific contingency plans to address
situations where mission critical and nonmission critical systems are not
remediated as planned by the Partnership or third parties. These plans will
be completed by June 30, 1999.
The current cost estimate of the Year 2000 initiative ranges from
approximately $40 million to $45 million. These costs consist principally
of modification costs and costs to develop formal Year 2000 specific
contingency plans. These costs, most of which will be expensed as incurred,
will be funded out of cash flow from the Partnership's operations. Through
14
December 31, 1998, the Partnership had incurred approximately $22 million of
costs related to the Year 2000 initiative. At this time, management of the
Partnership believes that the costs associated with resolving the Year
2000 issue will not have a material adverse effect on the Partnership's
results of operations, liquidity or capital resources.
There are many risks associated with Year 2000 issues, including
the risk that the Partnership's computer systems and applications will
not operate as intended and that the systems and applications of third
parties will not be Year 2000 compliant. Likewise, there can be no
assurance the compliance schedules outlined above will be met or that the
actual costs incurred will not exceed the current cost estimate.
Should the Partnership's significant computer systems and applications or
the systems of its important third-party suppliers be unable to process date
sensitive information accurately after 1999, the Partnership may be
unable to conduct its normal business operations and to provide its
clients with the required services. In addition, the Partnership may
incur unanticipated expenses, regulatory actions, and legal liabilities.
The Partnership cannot determine which risks, if any, are most reasonably
likely to occur nor the effects of any particular failure to be Year 2000
compliant.
Readers are cautioned that forward-looking statements contained
in "YEAR 2000" should be read in conjunction with the disclosure set
forth under "Forward-Looking Statements". To the fullest extent permitted
by law, the foregoing Year 2000 discussion is a "Year 2000 Readiness
Disclosure" within the meaning of The Year 2000 Information and Readiness
Disclosure Act, 15 U.S.C. Sec. 1 (1998).
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, 1997 the Partnership was
ranked 12th out of 703 managers based on tax-exempt assets under management, 8th
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. 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
15
($6.4 million at December 31, 1998) imposed by the SEC on registered
broker-dealers and had aggregate regulatory net capital of $15.7 million
at December 31, 1998.
The relationships of Equitable and its insurance company subsidiary
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 subsidiary 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 subsidiary 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, 1998 the Partnership and its subsidiaries employed
2,075 employees, including 257 investment professionals, of whom 135 are
portfolio managers, 107 are research analysts and 15 are order placement
specialists. The average period of employment of these professionals with the
Partnership is approximately 7 years and their average investment experience is
approximately 13 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 399,000 square feet
at this location. The Partnership also occupies approximately 110,900 square
feet at 135 West 50th Street, New York, New York under leases expiring in 2016.
The Partnership also occupies approximately 16,800 square feet at 709
Westchester Avenue, White Plains, New York under leases expiring in 2000 and
2004, 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 and approximately 92,100 square feet of space in
San Antonio, Texas pursuant to a lease which extends until 2009.
The Partnership also leases space in San Francisco, California;
Chicago, Illinois; Greenwich, Connecticut; Minneapolis, Minnesota; and
Beechwood, Ohio, and its subsidiaries and affiliates lease space in London,
England; Paris, France; Tokyo, Japan; Sydney, Australia; Toronto, Canada;
Luxembourg; Singapore; Manama, Bahrain; Mumbai, New Delhi,
16
Bangalore and Pune, India; Johannesburg, South Africa; and Istanbul, Turkey.
Joint venture subsidiaries and affiliates of the Partnership have offices in
Vienna, Austria; Sao Paolo, Brazil; Hong Kong; Chennai, India; Seoul,
Korea; Warsaw, Poland; Moscow, Russia; and Cairo, Egypt.
ITEM 3. LEGAL PROCEEDINGS
On July 25, 1995, a Consolidated and Supplemental Class Action
Complaint ("Original 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
Fund's investments in Mexican and Argentine securities. On September 26, 1996,
the United States District Court for the Southern District of New York granted
the defendants' motion to dismiss all counts of the Original Complaint. On
October 29, 1997, the United States Court of Appeals for the Second Circuit
affirmed that decision.
On October 29, 1996, plaintiffs filed a motion for leave to file an
amended complaint. The principal allegations of the amended complaint are
that (i) the Fund failed to hedge against currency risk despite
representations that it would do so, (ii) the Fund did not properly disclose
that it planned to invest in mortgage-backed derivative securities, and (iii)
two advertisements used by the Fund misrepresented the risks of investing in
the Fund. On October 15, 1998, the United States Court of Appeals for the
Second Circuit issued an order granting plaintiffs' motion to file an amended
complaint alleging that the Fund misrepresented its ability to hedge against
currency risk and denying plaintiffs' motion to file an amended complaint
alleging that the Fund did not properly disclose that it planned to invest in
mortgage-backed derivative securities and that certain advertisements used by
the Fund misrepresented the risks of investing in the Fund.
The Partnership believes that the allegations in the amended complaint
are without merit and intends to vigorously defend against this action. While
the ultimate outcome of this matter cannot be determined at this time,
management of the Partnership does not expect that it will have a material
adverse effect on the Partnership's results of operations or financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to security holders during the fourth quarter
of 1998.
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 sale prices on the NYSE during each quarter of the Partnership's two
most recent fiscal years were as follows:
1998 High Low
---- ---- ----
First Quarter 27 7/8 18 13/16
Second Quarter 29 23 7/8
Third Quarter 28 19 5/8
Fourth Quarter 27 1/2 19 3/4
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 23/32
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
sale prices above have been adjusted to reflect the Unit split to the extent
necessary.
On March 1, 1999 the closing price of the Units on the NYSE was
$25.50 per Unit. As of March 1,1999 there were approximately 1,722
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 1998 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 $ 0.38 May 18, 1998
Second Quarter 0.42 August 18, 1998
Third Quarter 0.39 November 23, 1998
Fourth Quarter 0.43 February 23, 1999
------
$1.62
------
------
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
------
------
On February 19, 1998 the Partnership declared a two for one Unit
split payable to Unitholders of record on March 11, 1998. The cash
distribution per Unit amounts above have been adjusted to reflect the Unit
split to the extent necessary.
ITEM 6. SELECTED FINANCIAL DATA
The Selected Consolidated Financial Data which appears on page 43 of
the Alliance Capital Management L.P. 1998 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 44 through 58 of the Alliance Capital
Management L.P. 1998 Annual Report to Unitholders is incorporated by reference
in this Annual Report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The quantitative and qualitative disclosures about market risk
contained in Management's Discussion and Analysis of Financial Condition and
Results of Operations on pages 56 and 57 of the Alliance Capital Management
L.P. 1998 Annual Report to Unitholders are incorporated by reference in this
Annual Report on Form 10-K.
19
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 LLP which appear on pages
59 through 80 of the Alliance Capital Management L.P. 1998 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, 1999 Equitable, ACMC and ECMC, affiliates of the General Partner,
held 96,613,481 Units.
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 1998 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.............. 66 Chairman of the Board and Director
Luis Javier Bastida........... 53 Director
Donald H. Brydon.............. 53 Director
Bruce W. Calvert.............. 52 Director, Vice Chairman and Chief
Executive Officer
John D. Carifa................ 54 Director, President and Chief
Operating Officer
Henri de Castries............. 44 Director
Kevin C. Dolan................ 45 Director
Denis Duverne................. 46 Director
Alfred Harrison............... 61 Director and Vice Chairman
Herve Hatt.................... 34 Director
Michael Hegarty............... 54 Director
Benjamin D. Holloway.......... 74 Director
Edward D. Miller.............. 58 Director
Peter D. Noris................ 43 Director
Frank Savage.................. 60 Director
Stanley B. Tulin.............. 49 Director
Reba W. Williams.............. 62 Director
Robert B. Zoellick............ 45 Director
David R. Brewer, Jr........... 53 Senior Vice President and General Counsel
Robert H. Joseph, Jr.......... 51 Senior Vice President and Chief
Financial Officer
Mr. Williams joined Alliance in 1977 and has been the Chairman
of the Board 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 of Canal International Holding; and a
Director of Privanza, the Private Bank of the same group.
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 Amersham 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.
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 Chief Executive Officer on January 6, 1999. He served as Chief
Investment Officer from May 3, 1993 until January 6, 1999. He was elected Vice
Chairman 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.
21
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 in the United States, Germany, the
United Kingdom and Benelux 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 of AXA 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 Financiere 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. Hatt was elected a Director of Alliance in May 1998. He has been
Senior Vice President of AXA since March 1998. From 1992 to 1998 he was a senior
engagement manager with McKinsey & Company, the management consultants, in
London and in Paris.
Mr. Hegarty was elected a Director of Alliance in May 1998. He has been
Director and Vice Chairman of ECI since April 1998 and Chief Operating Officer
since February 1998. He was Senior Executive Vice President of ECI from January
1998 to April 1998. From 1996 to 1997 he was Vice Chairman of Chase Manhattan
Corporation. He has also been a Director and President of Equitable since
January 1998 and Chief Operating Officer since February 1998. Prior thereto, he
was Vice Chairman (1995-1996) and Senior Executive Vice President (1991-1995) of
Chemical Bank, which merged with Chase in 1996. Mr. Hegarty is also a director
of DLJ. ECI and Equitable are parents of the Partnership. DLJ is a subsidiary of
ECI.
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, 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. Miller was elected a Director of Alliance in July 1997. He has been
a Director, 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 and a
Director of Equitable since August 1997. He is also a Senior Executive Vice
President of AXA. From 1996 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 1996 and Vice Chairman from 1991 to
1994. He is also a Director of DLJ, AXA Canada and KeySpan Energy Corporation,
formed as a
22
result of the merger of Long Island Lighting Company and Brooklyn Union Gas
Co. AXA, ECI and Equitable are parents of the Partnership. DLJ is a
subsidiary of ECI.
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, Lyondell 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 Director,
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. 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 and a Director of Alliance.
Mr. Zoellick was elected a Director of Alliance in February 1997. He is
currently the President and CEO of the Center for Strategic and International
Studies, an independent non-profit public policy institute with a staff of 180
and a $17 million budget. He served as the John M. Olin Professor in National
Security Affairs at the U.S. Naval Academy for 1997 and 1998. 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 Holdings and the Advisory Council of Enron
Corp. 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.
23
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 with respect to the Year 2000 initiative
and certain other matters. The Audit Committee also reviews various matters
relating to the Partnership's accounting and auditing policies and procedures.
The Audit Committee held 4 meetings in 1998.
The General Partner has a Board Compensation Committee composed of
Messrs. Williams, Holloway and Miller. 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 Miller, 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 $500 per
meeting of a committee of the Board of Directors not held in conjunction with a
Board of Directors meeting. The Partnership reimburses Messrs. Bastida, Brydon,
de Castries, Dolan, Duverne, Hatt, Holloway and Zoellick for certain expenses
incurred in attending Board of Directors' meetings. Other directors are not
entitled to any additional compensation from the General Partner for their
services as directors. The Board of Directors meets quarterly.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
General Partner's directors and executive officers, and persons who own more
than 10% of the Units, to file with the SEC and NYSE initial reports of
ownership and reports of changes in ownership of Units. To the best of the
Partnership's knowledge, during the year ended December 31, 1998 all Section
16(a) filing requirements applicable to its executive officers, directors and
10% beneficial owners were complied with.
24
ITEM 11. EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth all plan and
non-plan compensation awarded to, earned by or paid to the Chairman of the
Board and each of the four most highly compensated executive officers of the
General Partner at the end of 1998 ("Named Executive Officers"):
Long Term Compensation
-----------------------------
Annual Compensation Awards Payouts
----------------------------------------- -------------------- --------- ----------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Annual Restricted All other
Compen- Stock LTIP Compen-
sation Award(s) Options/ Payouts sation
Name and Principal Position Year Salary ($) Bonus ($) ($) (1) ($) (#Units) ($ )(1) ($) (2)
- --------------------------- ---- ---------- --------- ------- ---------- -------- ------- ---------
Dave H. Williams 1998 $ 274,976 $4,500,000 $-------- $ 0 $ 0 $ 0 $ 482,531
Chairman of the Board 1997 274,976 3,000,000 --------- 0 0 0 835,027
1996 263,443 4,000,000 --------- 0 0 0 267,568
John D. Carifa 1998 250,000 5,000,000 --------- 0 500,000 0 1,209,640
President & Chief Operating 1997 250,000 4,000,000 --------- 0 0 0 686,979
Officer 1996 238,461 3,000,000 54,752 0 0 0 426,398
Bruce W. Calvert 1998 250,000 4,500,000 264,273 0 500,000 0 1,208,311
Vice Chairman & 1997 250,000 4,000,000 --------- 0 0 0 687,532
Chief Executive Officer 1996 238,461 3,000,000 --------- 0 0 0 425,101
Robert H. Joseph, Jr. 1998 163,846 591,500 257,798 0 20,000 0 187,737
Senior Vice President & 1997 160,000 494,000 --------- 0 20,000 0 110,335
Chief Financial Officer 1996 157,692 385,000 --------- 0 20,000 0 61,434
David R. Brewer, Jr. 1998 163,846 595,000 199,448 0 20,000 0 187,737
Senior Vice President 1997 157,692 495,500 104,646 0 20,000 0 110,037
& General Counsel 1996 146,538 395,750 --------- 0 20,000 0 62,108
(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 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 1998 includes for Mr. Calvert, among other perquisites
and personal benefits, $247,323 for costs, including housing,
cost-of-living adjustment, tax equalization and car allowance, for a
temporary assignment in London and $16,950 for personal tax services.
Column (e) for 1998 includes for Mr. Joseph among other perquisites
and personal benefits, $240,000 representing the dollar value of the
difference between the exercise price and fair market value of Units
acquired as a result of the exercise of options granted under the
Partnership's Unit Option Plan, and $9,000 for personal tax services.
25
(2) Column (e) for 1998 and 1997 includes for Mr. Brewer, among other
perquisites and personal benefits, $187,000 and $98,000,
respectively, 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 and, for 1998, $5,700 for personal
tax services.
(2) Column (i) includes award amounts vested and earnings credited in
1996, 1997 and 1998 in respect of the Alliance Partners Compensation
Plan. Column (i) does not include any amounts in respect of awards
made in 1998 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.
Column (i) includes the following amounts for 1998:
Vesting of Awards
Earnings Vesting of Awards and Accrued Earnings Profit
Accrued and Accrued Earnings Under Alliance Sharing Term Life
On Partners Under Capital Partners Plan Insurance
Plan Balances Accumulation Plan Compensation Plan Contribution Premiums Total
------------- -------------------- ------------------- ------------ ----------- -----
Dave H. Williams $ 14,258 $ 81,694 $ 342,316 $ 23,000 $ 21,263 $ 482,531
John D. Carifa 5,575 94,224 1,079,929 23,000 6,912 1,209,640
Bruce W. Calvert 4,918 98,306 1,079,929 23,000 2,158 1,208,311
Robert H. Joseph, Jr. 0 0 160,306 23,000 4,431 187,737
David R. Brewer, Jr. 0 0 160,306 23,000 4,431 187,737
26
OPTION GRANTS IN 1998
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 ("Partnership Option Plans")
during 1998. 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 $43.61 and $69.28,
respectively. The amounts shown as potential realizable values for all
Unitholders represent the corresponding increases in the market value of
170,365,963 outstanding Units held by all Unitholders as of December 31, 1998,
which would total approximately $2.9 billion and $7.3 billion, respectively. No
gain to the optionees is possible without an increase in Unit price which will
benefit all Unitholders proportionately. These potential realizable values are
based solely on assumed rates of appreciation required by applicable SEC
regulations. Actual gains, if any, on option exercises and Unitholdings are
dependent on the future performance of the Partnership's Units. There can be no
assurance that the potential realizable values shown in this table will be
achieved.
Option Grants In 1998
Potential Realizable Value at
Assumed
Annual Rates of Unit Price
Individual Grants (1) Appreciation for Option Term
---------------------------------------------------------------------------------------------------
% of total
Number of Options
Securities Granted to
Underlying Employees in Exercise
Options Granted Fiscal Year Price Expiration 5% 10%
Name (#) (2) ($/Unit) Date ($) ($)
- -----------------------------------------------------------------------------------------------------------------------------
Dave H. Williams 0 N/A N/A N/A N/A N/A
John D. Carifa 500,000 18.0% 26.3125 12/10/08 8,274,000 20,968,000
Bruce W. Calvert 500,000 18.0% 26.3125 12/10/08 8,274,000 20,968,000
Robert H. Joseph, Jr. 20,000 0.7% 26.3125 12/10/08 331,000 839,000
David R. Brewer, Jr. 20,000 0.7% 26.3125 12/10/08 331,000 839,000
(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) Options in respect of 2,777,000 Units were granted in 1998.
27
AGGREGATED OPTION EXERCISES IN 1998 AND 1998 YEAR-END OPTION VALUES
The following table summarizes for each of the Named Executive Officers
the number of options exercised during 1998, the aggregate dollar value realized
upon exercise, the total number of Units subject to unexercised options held at
December 31, 1998, and the aggregate dollar value of in-the-money, unexercised
options held at December 31, 1998. 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, 1998, which was $25.75
per Unit. These values, have not been, and may never be, realized. The
underlying options have not been, and may never be, exercised; and actual gains,
if any, on exercise will depend on the value of the Partnership's Units on the
date of exercise. There can be no assurance that these values will be realized.
Aggregated Option Exercises In 1998
And December 31, 1998 Option Values
Number of Units Value of Unexercised
Underlying Unexpired In-the-Money Options
Options Value Options at December 31, 1998 at December 31, 1998 ($) (1)
Exercised Realized ----------------------------------- ------------------------------------
Name (# Units) ($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------- ----------- --------------- ---------------- ---------------- ----------------- -----------------
Dave H. Williams 0 N/A 0 0 0 0
John D. Carifa 0 N/A 530,000 720,000 8,457,500 3,530,000
Bruce W. Calvert 0 N/A 500,000 700,000 7,975,625 3,208,750
Robert H. Joseph, Jr. 10,880 240,000 119,120 80,000 1,943,495 775,250
David R. Brewer, Jr. 9,192 187,000 158,808 68,000 2,914,919 583,500
- ------------------------- ----------- --------------- ---------------- ---------------- ----------------- -----------------
(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.
CERTAIN EMPLOYEE BENEFIT PLANS
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
28
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 $19,277 $25,702 $32,128 $38,553 $44,979 $49,979 $54,979
150,000 30,527 40,702 50,878 61,053 71,229 78,729 86,229
200,000 41,777 55,702 69,628 83,553 97,479 100,000 100,000
250,000 53,027 70,702 88,378 100,000 100,000 100,000 100,000
300,000 64,277 85,702 100,000 100,000 100,000 100,000 100,000
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 1998 is $160,000, $160,000, $160,000, $160,000 and
$160,000, respectively.
DLJ EXECUTIVE SUPPLEMENTAL RETIREMENT PROGRAM. 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
29
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)(4) 96,647,111 56.7%
9 place Vendome
75001 Paris
France
ECI (4) 96,647,111 56.7%
1290 Avenue of the Americas
New York, NY 10019
(1) Based on information provided by ECI, at March 1, 1999, AXA and
certain of its subsidiaries beneficially owned approximately
58.4% of ECI's outstanding common stock. 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 ("Voting Trust") which has an initial term of 10
years commencing May 12, 1992. The trustees of the Voting Trust
(the "Voting Trustees") are Claude Bebear, Patrice Garnier and
Henri de Clermont-Tonnerre, each of whom serves on either the
Executive Board (in the case of Mr. Bebear) or Supervisory Board
(in the case of Messrs. Garnier and de Clermont-Tonnerre) of
AXA. 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) Based on information provided by AXA, on March 1, 1999,
approximately 20.7% of the issued ordinary shares (representing
32.7% of the voting power) of AXA were owned directly and
indirectly by Finaxa, a French holding company. As of March 1,
1999, 61.7% of the shares (representing 72.3% 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 35.4% of the shares, representing 41.5% of the voting power),
and 22.7% of the shares of Finaxa (representing 13.7% of the voting
power) were owned by Paribas, a French bank. Including the ordinary
shares owned by Finaxa, on March 1, 1999, the Mutuelles AXA
directly or indirectly owned approximately 23.9% of the issued
ordinary shares (representing 37.6% of the voting power) of AXA.
(3) 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. The Mutuelles AXA, as a
group, and Finaxa may be deemed to share the power to vote or to
direct the vote and to dispose or to direct the disposition of all
the Units beneficially
30
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 AXA
Conseil Vie Assurance Mutuelle is Tour Franklin, 100/101 Terrasse
Boieldieu, Cedex 11, 92042 Paris La Defense, France; and the
address of AXA Courtage Assurance Mutuelle is 26 rue Louis le
Grand, 75002 Paris, France. The address of Paribas is 3 rue
d'Antin, Paris, France.
(4) By reason of their relationship, AXA, the Voting Trustees, the
Mutuelles AXA, Finaxa, ECI, Equitable, Equitable Holdings, L.L.C.,
EIC, ACMC and ECMC may be deemed to share the power to vote or to
direct the vote and to dispose or direct the disposition of all or
a portion of the 96,613,481 Units.
31
MANAGEMENT
The following table sets forth, as of March 1, 1999, 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 of Percent of
Beneficial Owner Beneficial Ownership Class
---------------- ---------------------------- -----------
Dave H. Williams (1)(2) 1,868,912 1.1%
Luis Javier Bastida 0 *
Donald H. Brydon (1) 0 *
Bruce W. Calvert (1) (3) 1,550,000 *
John D. Carifa(1) (4) 2,205,136 1.3%
Henri de Castries (1) 0 *
Kevin C. Dolan (1) 0 *
Denis Duverne (1) 0 *
Alfred Harrison (1) 730,820 *
Herve Hatt (1) 0 *
Michael Hegarty (1) 0 *
Benjamin D. Holloway 11,600 *
Edward D. Miller (1) 0 *
Peter D. Noris (1) 2,000 *
Frank Savage (1) 101,000 *
Stanley B. Tulin (1) 0 *
Reba W. Williams (1)(5) 1,868,912 *
Robert B. Zoellick 600 *
David R. Brewer, Jr. (1)(6) 253,808 *
Robert H. Joseph, Jr. (1) (7) 147,120 *
All Directors and executive officers
of the General Partner as a Group (20 persons)(8) 6,870,996 4.0%
* Number of Units listed represents less than 1% of the Units
outstanding.
(1) Excludes Units beneficially owned by AXA, ECI and/or Equitable.
Messrs. Williams, Brydon, de Castries, Dolan, Duverne, Hatt,
Hegarty, Miller, Noris and Tulin are directors and/or officers
of AXA, ECI and/or Equitable. Messrs. Williams, Calvert, Carifa,
Harrison, Savage, Brewer, Joseph and Mrs. Reba W. Williams are
directors and/or officers of ACMC.
(2) Includes 160,000 Units owned by Mrs. Reba W. Williams.
(3) Includes 550,000 Units which may be acquired within 60 days
under Partnership Option Plans.
(4) Includes 590,000 Units which may be acquired within 60 days
under Partnership Option Plans.
(5) Includes 1,708,912 Units owned by Mr. Dave H. Williams.
(6) Includes 162,808 Units which may be acquired within 60 days
under Partnership Option Plans.
(7) Includes 127,120 Units which may be acquired within 60 days
under Partnership Option Plans.
(8) Includes 1,429,928 Units which may be acquired within 60 days
under Partnership Option Plans.
32
The following tables set forth, as of March 1, 1999, 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 of Percent of
Beneficial Owner Beneficial Ownership Class
- ---------------- ------------------------------ ----------
Dave H. Williams (1)(2) 100,000 *
Luis Javier Bastida 0 *
Donald H. Brydon (2) 0 *
Bruce W. Calvert (3) 50,000 *
John D. Carifa (4) 50,000 *
Henri de Castries (2)(5) 13,333 *
Kevin C. Dolan (2) 0 *
Denis Duverne (2)(6) 10,333 *
Alfred Harrison 0 *
Herve Hatt (2) 0 *
Michael Hegarty (2)(7) 48,228 *
Benjamin D. Holloway 108 *
Edward D. Miller (2)(8) 142,745 *
Peter D. Noris (9) 70,825 *
Frank Savage 136 *
Stanley B. Tulin (10) 87,437 *
Reba W. Williams (1) 100,000 *
Robert B. Zoellick 0 *
David R. Brewer, Jr. 0 *
Robert H. Joseph, Jr. 0 *
All Directors and executive
officers of the General
Partner as a Group (20 Persons) (11) 573,145 *
* Number of shares listed represents less than one percent (1%)
of the number of shares of Common Stock outstanding.
(1) Represents 100,000 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,
Brydon, de Castries, Dolan, Duverne, Hatt, and Miller are
officers of AXA.
(3) Represents 50,000 shares subject to options held by Mr.
Calvert, which options Mr. Calvert has the right to exercise
within 60 days.
(4) Represents 50,000 shares subject to options held by Mr.
Carifa, which options Mr. Carifa has the right to exercise
within 60 days.
(5) Represents 13,333 shares subject to options held by Mr. de
Castries, which options Mr. de Castries has the right to
exercise within 60 days.
(6) Includes 8,333 shares subject to options held by Mr. Duverne,
which options Mr. Duverne has the right to exercise within 60
days.
(7) Includes 48,039 shares subject to options held by Mr.
Hegarty, which options Mr. Hegarty has the right to exercise
within 60 days.
(8) Represents 142,745 shares subject to options held by Mr.
Miller, which options Mr. Miller has the right to exercise
within 60 days.
(9) Represents 70,825 shares subject to options held by Mr.
Noris, which options Mr. Noris has the right to exercise
within 60 days.
(10) Includes 82,819 shares subject to options held by Mr. Tulin,
which options Mr. Tulin has the right to exercise within 60
days and 4,000 shares owned jointly by Mr. Tulin and his
spouse, Riki P. Tulin.
(11) Includes 566,094 shares subject to options, which options
my be exercised within 60 days.
33
AXA Common Stock
----------------
Name of Number of Shares and Nature of Percent of
Beneficial Owner Beneficial Ownership Class
- ---------------- ------------------------------ ----------
Dave H. Williams (1) 5,000 *
Luis Javier Bastida 0 *
Donald H. Brydon 0 *
Bruce W. Calvert (2) 1,250 *
John D. Carifa (3) 1,750 *
Henri de Castries (4) 70,188 *
Kevin C. Dolan (5) 19,201 *
Denis Duverne (6) 11,042 *
Alfred Harrison 0 *
Herve Hatt 0 *
Michael Hegarty 0 *
Benjamin D. Holloway 0 *
Edward D. Miller 0 *
Peter D. Noris (7) 1,250 *
Frank Savage 0 *
Stanley B. Tulin (8) 3,500 *
Reba W. Williams (1) 5,000 *
Robert B. Zoellick 0 *
David R. Brewer, Jr. 0 *
Robert H. Joseph, Jr. 0 *
All Directors and executive officers
of the General Partner as a Group
(20 persons) (9) 113,181 *
* Number of shares listed represents less than one percent (1%)
of the outstanding AXA common stock. Holdings of AXA American
Depositary Shares are expressed as their equivalent in AXA
common stock. Each AXA American Depositary Share is equivalent
to one-half of a share of AXA Common Stock.
(1) Represents 5,000 shares subject to options held by Mr.
Williams, which options Mr. Williams has the right to exercise
within 60 days.
(2) Represents 1,250 shares subject to options held by Mr.
Calvert, which options Mr. Calvert has the right to exercise
within 60 days.
(3) Includes 1,250 shares subject to options held by Mr. Carifa,
which options Mr. Carifa has the right to exercise within 60
days.
(4) Includes 69,188 shares subject to options held by Mr. de
Castries, which options Mr. de Castries has the right to
exercise within 60 days.
(5) Represents 19,201 shares subject to options held by Mr. Dolan,
which options Mr. Dolan has the right to exercise within 60
days.
(6) Includes 1,000 shares held jointly with Mr. Duverne's wife, 42
shares owned by Mr. Duverne's children and 10,000 shares
subject to options held by Mr. Duverne, which options Mr.
Duverne has the right to exercise within 60 days.
(7) Represents 1,250 shares subject to options held by Mr. Noris,
which options Mr. Noris has the right to exercise within 60
days.
(8) Includes 2,500 shares subject to options held by Mr. Tulin,
which options Mr. Tulin has the right to exercise within 60
days.
(9) Includes 109,639 total options shares subject to options,
which options may be exercised within 60 days.
34
Finaxa Common Stock
-------------------
Name of Number of Shares and Nature of Percent of
Beneficial Owner Beneficial Ownership Class
- ---------------- ------------------------------ ----------
Dave H. Williams 0 *
Luis Javier Bastida 0 *
Donald H. Brydon 0 *
Bruce W. Calvert 0 *
John D. Carifa 0 *
Henri de Castries (1) 115,000 *
Kevin C. Dolan 0 *
Denis Duverne 0 *
Alfred Harrison 0 *
Herve Hatt 0 *
Michael Hegarty 0 *
Benjamin D. Holloway 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
of the General Partner
as a Group (20 persons) (2) 115,000 *
* Number of shares listed represents less than one percent
(1%) of the outstanding Finaxa common stock.
(1) Represents 115,000 shares subject to options held by Mr. de
Castries, which options Mr. de Castries has the right to
exercise within 60 days.
(2) Represents 115,000 shares subject to options, which options
may be exercised within 60 days.
35
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, ECI, 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.
36
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
COMPETITION
AXA, ECI, 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, ECI, 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 subsidiary
pursuant to investment advisory agreements. During 1998 the Partnership
received approximately $62.5 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 1998 the Partnership received
approximately $8.7 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 subsidiary. During 1998 the
Partnership paid approximately $1.2 million to Equitable for these services.
During 1998 the Partnership paid Equitable approximately $32.0
million for certain services provided by Equitable 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 life insurance policies to ACMC on certain
employees of the Partnership, the costs of which are borne by ACMC without
reimbursement by the Partnership. During 1998 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 subsidiaries. The amount
of premiums for these group policies paid by the Partnership to Equitable was
approximately $215,000 for 1998.
The Partnership provides investment management services to certain
employee benefit plans of Equitable and DLJ. Advisory fees from these
accounts totaled approximately $6.0 million for 1998 including $2.6 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. 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 $3.2 million in advisory
fees to the Partnership in 1998.
EQ Financial was the Partnership's third largest distributor of U.S.
Funds in 1998 for which it received sales concessions from the Partnership on
sales of $826 million. In 1998 EQ Financial also distributed certain of the
Partnership's cash management products. EQ Financial received distribution
payments totaling $8.2 million in 1998 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
37
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
$74.3 million in 1998. 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 $112,000 for 1998. During 1998 the Partnership paid $600,000 to
DLJ and its subsidiaries for all other services.
During 1998 the Partnership reimbursed Equitable in the amount of
$3.1 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 $829,000 during
1998 for such services.
The Partnership and its subsidiaries also provide investment
management services to AXA World Funds, a Luxembourg fund, pursuant to a
sub-advisory agreement between the Partnership and AXA Funds Management SA, a
subsidiary of AXA. The Partnership earned $102,000 in management fees during
1998, which fees were paid in full in 1999.
OTHER TRANSACTIONS
During 1998 the Partnership paid certain legal and other expenses
incurred by Equitable and its insurance company subsidiary relating to the
general and separate accounts of Equitable and such subsidiary for which it
has been or will be fully reimbursed by Equitable. The largest amount of such
indebtedness outstanding during 1998 was approximately $81,000 which
represents the amount outstanding on September 30, 1998.
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 was fully reimbursed for such expenditures in 1998.
The largest amount of indebtedness due to the Partnership in respect of such
venture was approximately $288,000 which represents the amount outstanding on
April 30, 1998.
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". 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 1998 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 $29.4 million from the hedge
funds in 1998 primarily in respect of the performance by the hedge funds in
1997. Mr. Alfred Harrison, a Director and Vice Chairman of the General
Partner, received $2,906,098 in 1998 in respect of his association with the
hedge funds.
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 1998 ACMC
38
made capital contributions to the Partnership in the amount of $716,000 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.
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, 1998 and 1997................................. 59
Consolidated Statements of Income
Years ended December 31, 1998, 1997 and 1996............... 60
Consolidated Statements of Changes in Partners' Capital
and Comprehensive Income
Years ended December 31 1998, 1997 and 1996................ 61
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997, and 1996.............. 62
Notes to Consolidated Financial Statements........................ 63 - 79
Independent Auditors' Report...................................... 80
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.
No report on Form 8-K was filed during the last quarter of
1998.
39
(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 13.10,
incorporated by reference herein:
Exhibit Description
------- -----------
10.102 Unit Option Plan Agreement dated December 10,
1998 with Bruce W. Calvert
10.103 Unit Option Plan Agreement dated December 10,
1998 with John D. Carifa
10.104 Unit Option Plan Agreement dated December 10,
1998 with Robert H. Joseph, Jr.
10.105 Unit Option Plan Agreement dated December 10,
1998 with David R. Brewer, Jr.
10.106 Revolving Credit Agreement dated as of July 20,
1998 among Alliance Capital Management L.P., as
Borrower, and the lending institutions listed on
Schedule 1 thereto, collectively as Banks, and
NationsBank, N.A., The Chase Manhattan Bank,
and the Bank of New York, individually as
Co-Agents, NationsBank, N.A., as
Administrative Agent, The Chase Manhattan
Bank, as Syndication Agent, and The Bank of
New York, as Documentation Agent.
13.10 Pages 43 through 80 of the Alliance Capital
Management L.P. 1998 Annual Report to Unitholders
22.10 Subsidiaries of the Registrant
24.9 Consent of KPMG LLP
25.95 Power of Attorney by Luis Javier Bastida
25.96 Power of Attorney by Donald H. Brydon
25.97 Power of Attorney by Henri de Castries
25.98 Power of Attorney by Kevin C. Dolan
25.99 Power of Attorney by Denis Duverne
25.100 Power of Attorney by Alfred Harrison
25.101 Power of Attorney by Herve Hatt
25.102 Power of Attorney by Michael Hegarty
25.103 Power of Attorney by Benjamin D. Holloway
25.104 Power of Attorney by Edward D. Miller
25.105 Power of Attorney by Peter D. Noris
25.106 Power of Attorney by Stanley B. Tulin
25.107 Power of Attorney by Robert B. Zoellick
27.03 Financial Data Schedule
40
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, 1999 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, 1999 /s/John D. Carifa
-------------------
John D. Carifa
President and Chief Operating Officer
Date: March 30, 1999 /s/Robert H. Joseph, Jr.
-------------------
Robert H. Joseph, Jr.
Senior Vice President and Chief
Financial Officer
41
Directors
/s/Dave H. Williams *
- ------------------------------ -----------------------------
Dave H. Williams Michael Hegarty
Chairman and Director Director
* *
- ------------------------------ -----------------------------
Luis Javier Bastida Benjamin D. Holloway
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)
*
- ------------------------------
Herve Hatt
Director
42