FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1994 --------------------------------------------- OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------- -------------------- Commission File No. 1-9818 ------------------------------------------------------- ALLIANCE CAPITAL MANAGEMENT L.P. - - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3434400 - - ------------------------------- ------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1345 Avenue of the Americas, New York, NY 10105 - - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (212) 969-1000 - - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---------- ---------- The number of Units representing assignments of beneficial ownership of Limited Partnership Interests outstanding as of March 31, 1994 was 72,809,560 Units.
ALLIANCE CAPITAL MANAGEMENT L.P. Index to Form 10-Q Part I FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS PAGE Condensed Consolidated Statements of Financial Condition 2 Condensed Consolidated Statements of Income 3 Condensed Consolidated Statements of Changes in Partners' Capital 4 Condensed Consolidated Statements of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 6-9 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10-12 Part II OTHER INFORMATION Item 1. LEGAL PROCEEDINGS 13-14 Item 2. CHANGES IN SECURITIES 14 Item 3. DEFAULTS UPON SENIOR SECURITIES 14 Item 4. SUBMISSION OF MATTERS TO A VOTE OF 14 SECURITY HOLDERS Item 5. OTHER INFORMATION 14-15 Item 6. EXHIBITS AND REPORTS ON FORM 8-K 15 - 1 -
Part I FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS ALLIANCE CAPITAL MANAGEMENT L.P. Condensed Consolidated Statements of Financial Condition (unaudited) (in thousands) <TABLE> <CAPTION> ASSETS 3/31/94 12/31/93 ------- -------- <S> <C> <C> Cash and cash equivalents....................... $ 76,855 $ 96,315 Fees receivable: Alliance mutual funds......................... 31,178 29,594 Other affiliated clients...................... 12,206 17,262 Institutional clients......................... 42,639 40,685 Receivable from brokers and dealers for sale of shares of Alliance mutual funds............ 70,940 103,921 Other receivables............................... 5,463 4,894 Investments in Alliance mutual funds............ 45,069 56,552 Other investments............................... 4,762 4,966 Furniture, equipment and leasehold improvements, net............................. 32,332 28,767 Intangible assets, net.......................... 99,456 30,707 Deferred sales commissions, net................. 162,696 140,558 Prepaid expenses and other assets............... 10,468 7,066 -------- -------- Total assets................................ $594,064 $561,287 -------- -------- -------- -------- LIABILITIES AND PARTNERS' CAPITAL Liabilities: Accounts payable and accrued expenses........... $ 72,570 $ 56,526 Payable to Alliance mutual funds for share purchases..................................... 98,425 145,684 Accrued expenses under employee benefit plans... 46,846 35,597 Debt............................................ 159,377 109,435 -------- -------- Total liabilities......................... 377,218 347,242 Partners' capital................................. 216,846 214,045 -------- -------- Total liabilities and partners' capital... $594,064 $561,287 -------- -------- -------- -------- </TABLE> See accompanying notes to condensed consolidated financial statements. - 2 -
ALLIANCE CAPITAL MANAGEMENT L.P. Condensed Consolidated Statements of Income (unaudited) (in thousands, except per Unit amounts) <TABLE> <CAPTION> Three Months Ended -------------------- 3/31/94 3/31/93 -------- -------- <S> <C> <C> Revenues: Investment advisory and services fees: Alliance mutual funds............................... $ 50,911 $ 37,446 Other affiliated clients............................ 10,965 7,655 Institutional clients............................... 38,783 35,427 Distribution plan fees from Alliance mutual funds..... 34,645 22,439 Shareholder servicing and administration fees......... 9,734 7,430 Other revenues........................................ 3,527 2,028 -------- -------- 148,565 112,425 -------- -------- Expenses: Employee compensation and benefits................... 42,389 35,269 General and administrative........................... 16,424 16,802 Interest............................................. 2,223 2,735 Promotion and servicing: Distribution plan payments to financial intermediaries: Affiliated..................................... 4,956 2,893 Unaffiliated................................... 22,338 14,184 Amortization of deferred sales commissions......... 11,980 7,947 Other.............................................. 12,208 6,383 Amortization of intangible assets.................... 1,891 1,743 Nonrecurring transaction expenses.................... -- 7,300 -------- -------- 114,409 95,256 -------- -------- Income before income taxes and cumulative effect of accounting change................................. 34,156 17,169 Income taxes......................................... 2,732 1,474 -------- -------- Income before cumulative effect of accounting change.................................... 31,424 15,695 Cumulative effect of change in accounting for income taxes................................... -- 900 -------- -------- Net income............................................. $ 31,424 $ 16,595 -------- -------- -------- -------- Earnings per Unit: Income before cumulative effect of accounting change $ .42 $ .22 Cumulative effect of change in accounting for income taxes................................... -- .01 -------- -------- Net income per Unit.................................. $ .42 $ .23 -------- -------- -------- -------- Weighted average number of Units and Unit equivalents outstanding.............................. 73,913 70,757 -------- -------- -------- -------- </TABLE> See accompanying notes to condensed consolidated financial statements. - 3 -
ALLIANCE CAPITAL MANAGEMENT L.P. Condensed Consolidated Statements of Changes in Partners' Capital (unaudited) (in thousands) <TABLE> <CAPTION> Three Months Ended -------------------- 3/31/94 3/31/93 -------- -------- <S> <C> <C> Partners' capital -- beginning of period.............. $214,045 $160,626 Net income.......................................... 31,424 16,595 Capital contribution received from Alliance Capital Management Corporation.................... 476 517 Distributions to partners........................... (29,925) (18,950) Unit options exercised.............................. 814 425 Foreign currency translation adjustment............. 12 43 -------- -------- Partners' capital end of period....................... $216,846 $159,251 -------- -------- -------- -------- </TABLE> See accompanying notes to condensed consolidated financial statements. - 4 -
ALLIANCE CAPITAL MANAGEMENT L.P. Condensed Consolidated Statements of Cash Flows (unaudited) (in thousands, except per Unit amounts) <TABLE> <CAPTION> Three Months Ended ----------------------- 3/31/94 3/31/93 -------- -------- <S> <C> <C> Net income ................................................ $ 31,424 $ 16,595 Adjustments to reconcile net income to net cash provided from operating activities: Amortization and depreciation............................ 15,824 11,536 Deferred compensation expense............................ 979 965 Cumulative effect of change in accounting for income taxes.......................................... -- (900) Other, net............................................... 12 (25) Changes in assets and liabilities: Decrease in fees receivable from Alliance mutual funds, other affiliated clients and institutional clients... 5,290 1,039 (Increase) decrease in receivables from brokers and dealers for sale of shares of Alliance mutual funds.. 32,981 (23,646) (Increase) in other receivables........................ (491) (1,023) (Increase) in deferred sales commissions............... (34,117) (9,268) (Increase) decrease in prepaid expenses and other assets......................................... (3,546) 812 Increase in accounts payable and accrued expenses..... 11,191 2,789 Increase (decrease) in payable to Alliance mutual funds for share purchases..................... (47,259) 28,056 Increase in accrued expenses under employee benefit plans, less deferred compensation.................... 10,613 8,824 -------- -------- Net cash provided from operating activities........ 22,901 35,754 -------- -------- Cash flows from investing activities: Purchase of Alliance mutual funds ........................ (21,540) (13,461) Proceeds from sale of Alliance mutual funds............... 33,023 1,100 Acquisition of Shields and Regent ........................ (70,639) -- Decrease in other investments............................. 204 659 Additions to furniture, equipment and leasehold improvements, net............................ (4,385) (790) -------- -------- Net cash used in investing activities.............. (63,337) (12,492) -------- -------- Cash flows from financing activities: Proceeds from borrowings.................................. 70,000 -- Repayment of debt......................................... (20,058) (288) Distributions to partners................................. (29,925) (18,955) Capital contribution received from Alliance Capital Management Corporation................................. 133 133 Unit options exercised.................................... 814 425 -------- -------- Net cash provided from (used in) financing activities....................................... 20,964 (18,685) -------- -------- Effect of exchange rate changes on cash and cash equivalents.......................................... 12 43 -------- -------- Net increase (decrease) in cash and cash equivalents........ (19,460) 4,620 Cash and cash equivalents at beginning of period............ 96,315 76,787 -------- -------- Cash and cash equivalents at end of period.................. $ 76,855 $ 81,407 -------- -------- -------- -------- </TABLE> See accompanying notes to condensed consolidated financial statements. - 5 -
ALLIANCE CAPITAL MANAGEMENT L.P. Notes to Condensed Consolidated Financial Statements March 31, 1994 (unaudited) 1. BASIS OF PRESENTATION The unaudited interim condensed consolidated financial statements of Alliance Capital Management L.P. ("Partnership") included herein have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of (a) results of operations for the three months ended March 31, 1994 and 1993, (b) financial position at March 31, 1994, and (c) cash flows for the three months ended March 31, 1994 and 1993, have been made. 2. RECLASSIFICATIONS Certain prior period amounts have been reclassified to conform to the current period presentation. 3. ACQUISITIONS On March 7, 1994, the Partnership completed the acquisition of the business and substantially all of the assets of Shields Asset Management, Incorporated ("Shields") and its wholly-owned subsidiary, Regent Investor Services Incorporated ("Regent"), from Xerox Financial Services, Inc. for a purchase price of approximately $70 million in cash. In addition, the Partnership issued 645,160 new Units to key employees of Shields and Regent having an aggregate value of approximately $15 million in connection with the employees entering into long-term employment agreements with the Partnership. The aggregate value of these Units is being amortized as employee compensation expense ratably over five years. The acquisition was accounted for under the purchase method with the results of Shields and Regent included from the acquisition date. Goodwill of $70.6 million was recorded which represents the excess of the purchase price, including acquisition expenses, over the estimated fair value of the net assets of the acquired business. On July 22, 1993, Alliance Capital Management L.P. (the "Partnership") acquired the business and substantially all of the assets of Equitable Capital Management Corporation ("ECMC"), an indirect wholly-owned subsidiary of The Equitable Companies Incorporated ("Equitable"). The acquisition was accounted for in a manner similar to the pooling of interests method. Accordingly, consolidated financial information for the three months ended March 31, 1993 has been restated to include the results of operations of ECMC. - 6 -
4. INTANGIBLE ASSETS Intangible assets, consisting principally of goodwill and client files, are being amortized on a straight line basis over their estimated useful lives ranging from twelve to forty years. The Partnership periodically evaluates the value or recoverability of the carrying amount of its intangible assets utilizing forecasted undiscounted cash flows. 5. DEFERRED SALES COMMISSIONS Sales commissions paid to financial intermediaries in connection with the sale of shares of mutual funds managed by the Partnership ("Alliance mutual funds") sold without a front-end sales charge are capitalized and amortized over periods not exceeding five and one half years, which approximate the periods of time during which the sales commissions are expected to be recovered from distribution plan payments received from the Alliance mutual funds and contingent deferred sales charges received from shareholders of the Alliance mutual funds. Contingent deferred sales charges reduce unamortized deferred sales commissions when received. 6. DEBT Debt includes two series of senior notes: Series A aggregating $80,000,000 with principal payments of $20,000,000, $25,000,000, $10,000,000 and $25,000,000 due on December 30 of each of the years 1994 through 1997, respectively; and Series B aggregating $25,000,000 payable on September 30, 1996. Interest on the Series A and Series B senior notes is paid semi- annually at annual rates of 7.0% and 7.35%, respectively. The senior note agreements contain covenants which require the Partnership, among other things, to meet certain financial ratios and to maintain minimum tangible partners' capital. During February 1994, the Partnership established a $100,000,000 revolving credit facility with several banks. The revolving credit facility converts on March 31, 1997 into a term loan repayable in equal installments quarterly through March 31, 1999. Outstanding borrowings generally bear interest at the Eurodollar Rate plus .875% per annum through March 31, 1997 (4.31% at March 31, 1994) and at the Eurodollar Rate plus 1.125% per annum after conversion through March 31, 1999. In addition, a quarterly commitment fee of .25% per annum is paid on the average daily unused amount. The outstanding balance under this credit facility was $50,000,000 at March 31, 1994. The revolving credit facility contains covenants which require the Partnership, among other things, to meet certain financial ratios. Debt also includes promissory notes contributed to certain investment partnerships in the aggregate principal amount $4,110,000 at March 31, 1994. The principal amounts of the notes will be reduced proportionately as partners receive return of capital distributions from the investment partnerships. - 7 -
7. INCOME TAXES The Partnership is a publicly traded partnership for Federal income tax purposes and, accordingly, is not currently subject to Federal and state income taxes but is subject to the New York City unincorporated business tax ("UBT"). Current law generally provides that certain publicly traded partnerships, including the Partnership, will be taxable as a corporation beginning in 1998. Domestic corporate subsidiaries of the Partnership, which are subject to Federal, state and local income taxes, file a consolidated Federal income tax return and separate state and local income tax returns. Foreign corporate subsidiaries are generally subject to taxes in the foreign jurisdictions where they are located. ECMC is included in the Federal income tax return of Equitable and, prior to the acquisition, a Federal income tax equivalent provision was computed on a separate return basis. In addition, ECMC filed separate state and local income tax returns. The provision for income taxes is comprised of (in thousands): <TABLE> <CAPTION> Three Months Ended March 31, ------------------ 1994 1993 ------- ------- <S> <C> <C> Partnership............................. $ 2,732 $ 934 ECMC.................................... -- 540 ------- ------- $ 2,732 $ 1,474 ------- ------- ------- ------- </TABLE> 8. NET INCOME PER UNIT Net income per Unit is computed by reducing net income by 1% for the 1% general partnership interest held by the General Partner and dividing the remaining 99% by the weighted average number of Units, Class A Limited Partnership Interest and Unit equivalents outstanding during each period. 9. SUPPLEMENTAL CASH FLOW INFORMATION Cash payments for interest and income taxes were as follows (in thousands): <TABLE> <CAPTION> Three Months Ended ------------------ 3/31/94 3/31/93 ------- ------- <S> <C> <C> Interest................................. $ 693 $ 538 Income taxes............................. 2,604 1,728 </TABLE> The 1994 consolidated statement of cash flows does not include the issuance by the Partnership of new Units to key employees of Shields and Regent having an aggregate value of approximately $15 million in connection with their entering into long-term employment agreements since this transaction did not provide or use cash. - 8 -
10. SUBSEQUENT EVENTS On April 21, 1994, the Board of Directors of the General Partner declared a distribution of $29,928,000 or $.41 per Unit representing the Available Cash Flow (as defined in the Partnership Agreement) of the Partnership for the three months ended March 31, 1994. The distribution was paid on May 9, 1994 to holders of record on May 2, 1994. On May 6, 1994, the Partnership issued a newly created Class B Limited Partnership Interest to the Equitable Life Assurance Society of the United States ("ELAS") for $50 million in cash. The Class B Limited Partnership Interest will be converted into 2,266,288 newly issued Units upon approval by the holders of a majority of the outstanding Units. - 9 -
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The Partnership acquired the business and substantially all of the assets of Equitable Capital Management Corporation ("ECMC") on July 22, 1993. The acquisition was accounted for in a manner similar to the pooling of interests method and, accordingly, the condensed consolidated financial statements of the Partnership and its subsidiaries for the three months ended March 31, 1993 have been restated to include the results of operations of ECMC. On March 7, 1994, the Partnership acquired the business and substantially all of the assets of Shields Asset Management, Incorporated ("Shields") and its wholly-owned subsidiary, Regent Investor Services, Incorporated ("Regent"), from Xerox Financial Services, Inc. for a purchase price of approximately $70 million in cash. The acquisition was accounted for under the purchase method with the results of Shields and Regent included in the Partnership's condensed consolidated financial statements from the acquisition date. THREE MONTHS ENDED MARCH 31, 1994 COMPARED TO THREE MONTHS ENDED MARCH 31, 1993 The Partnership recorded net income for the three months ended March 31, 1994 of $31.4 million or $0.42 per Unit, an increase of 89.2% over net income of $16.6 million or $0.23 per Unit for the three months ended March 31, 1993. Net income for the three months ended March 31, 1993 includes a charge of $7.3 million for expenses incurred through that date in connection with the acquisition of ECMC and a $0.9 million deferred income tax benefit resulting from the adoption of Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" as of January 1, 1993. Excluding these nonrecurring items, net income for the three months ended March 31, 1994 increased 45.4% over net income of $21.6 million, or $.30 per Unit, for the prior year period. Assets under management by the Partnership at March 31, 1994 were approximately $123.2 billion, an increase of $21.5 billion or 21.2% from March 31, 1993. The increase is primarily the result of net mutual fund sales of $9.2 billion, including closed-end fund sales of $3.0 billion, an increase of $7.8 billion in assets under management from the acquisition of Shields and Regent and market appreciation of $2.3 billion. Revenues for the three months ended March 31, 1994 were $148.6 million, an increase of 32.1% from the prior year period. Investment advisory and services fees, which are based on assets under management, increased 25.0%. Investment advisory fees from Alliance mutual funds increased by 36.0% due to higher average assets under management resulting from strong net mutual fund sales. Investment advisory fees from other affiliated clients increased by 43.2% principally due to a $2.4 million increase in performance fees. Investment advisory fees from institutional clients increased by 9.5% due to an increase in average assets under management resulting from new account additions, resulting principally from the acquisition of Shields, and market appreciation during 1993. - 10 -
Distribution plan fees increased 54.4% due principally to higher average load mutual fund assets attributable to Class B and Class C Shares under the Partnership's mutual fund distribution system described under "Capital Resources and Liquidity". Shareholder servicing and administration fees increased 31.0% due primarily to an increase in the number of shareholder accounts serviced by the Partnership. Other revenues, consisting of commissions, interest and dividends, increased 73.9% as a result of the launching of a new closed-end fund, The Global Privatization Fund, for which the Partnership earned substantial commissions. Alliance Short-Term Multi-Market Trust accounted for approximately 6% and 12% of the Partnership's aggregate revenues during the three months ended March 31, 1994 and 1993, respectively. Expenses for the three months ended March 31, 1994 were $114.4 million, an increase of 20.1% from the prior year period. Excluding the $7.3 million in nonrecurring transaction expenses incurred in connection with the ECMC acquisition in 1993, expenses increased 30.1% from the prior year period. Employee compensation and benefits increased 20.2% principally due to an increase in commission expense of $3.6 million resulting from increased mutual fund sales, including The Global Privatization Fund, and higher incentive compensation of $3.0 million resulting from increased operating earnings. General and administrative expenses decreased 2.2% due to the termination of a management fee paid by ECMC to The Equitable Life Assurance Society of the United Sates ("ELAS") and the elimination of certain office space formerly leased by ECMC, both effective with the ECMC acquisition. This decrease was partially offset by increases in closed-end fund sub-advisory and administration fees and professional fees. Promotion and fund servicing expense, which includes distribution plan payments to financial intermediaries for distribution of the Partnership's mutual fund and cash management services products, amortization of deferred sales commissions paid to brokers for the sale of Class B Shares, advertising, promotional materials and travel and entertainment, increased 63.9%. Distribution plan payments increased 59.8% due principally to higher average load mutual fund assets attributable to Class B and Class C Shares. Amortization of deferred sales commissions increased by 50.7% due to continuing sales of Class B Shares. Other promotional expenditures increased by 91.3% as a result of costs associated with the launching of The Global Privatization Fund and a new mutual fund advertising campaign. The provision for income taxes increased by 85.3% principally due to increased operating income offset by a decrease in the effective income tax rate from approximately 9% in the prior year to approximately 8% in 1994. The decrease in the effective income tax rate is primarily due to higher 1993 income tax expense resulting from ECMC's operations prior to the acquisition at the historical effective income tax rate of approximately 46%. CAPITAL RESOURCES AND LIQUIDITY Cash flow from borrowings under the Partnership's revolving credit facility and cash flows from operations were the Partnership's principal sources of working capital during the three month period ended March 31, 1994. The Partnership's cash and cash equivalents decreased by $19.5 million. The cash outflows from the purchase of Shields for $70.0 million, capital expenditures of $4.4 million and cash distributions to Unitholders of $29.9 million, were partially offset by cash inflows of $50.0 million in net borrowings, $22.9 million in cash flow from operations and net redemptions of Alliance mutual funds in the amount of $11.5 million. - 11 -
The Partnership's mutual fund distribution system (the "System") includes three distribution options. The System permits the Alliance mutual funds to offer investors the option of purchasing shares (a) subject to a conventional front- end sales charge ("Class A Shares"), (b) without a front-end sales charge but subject to a contingent deferred sales charge payable by shareholders ("CDSC") and higher distribution fees payable by the funds ("Class B Shares"), or (c) without either a front-end sales charge or the CDSC but with higher distribution fees payable by the funds ("Class C Shares"). During the first three months of 1994, payments made to financial intermediaries in connection with the sale of Class B Shares under the System, net of CDSC received, totaled $34.1 million. The Partnership financed the acquisition of Shields and Regent in part with a new $100 million revolving credit facility established during February with a group of banks, as more fully discussed in Note 6 to the condensed consolidated financial statements. Outstanding debt at March 31, 1994 under the Partnership's revolving credit facility and the senior notes was $50 million and $105 million, respectively. On May 6, 1994, the Partnership issued a newly created Class B Limited Partnership Interest to ELAS for $50 million in cash. The Class B Limited Partnership Interest will be converted into 2,266,288 newly issued Units upon approval by the holders of a majority of the outstanding Units. As a result of the substantial growth in the Partnership's business, increased sales levels of Class B Shares under the System and to take advantage of growth opportunities and strategic global opportunities, the Partnership will require additional capital. Various alternatives for increasing the Partnership's capital base, including the issuance of new Units for cash and the issuance of additional debt, are being evaluated by management. Management of the Partnership believes that funds generated from operations, additional debt and the issuance of new Units will provide the Partnership with a capital base sufficient to support its future capital and liquidity requirements. CASH DISTRIBUTIONS The Partnership is required to distribute all of its Available Cash Flow, as defined in the Partnership Agreement, to the General Partner and Unitholders. Available Cash Flow and Available Cash Flow Per Unit amounts do not include Available Cash Flow resulting from the operations of ECMC prior to the acquisition. The Partnership's Available Cash Flow was as follows: <TABLE> <CAPTION> Three Months Ended March 31, ------------------ 1994 1993 ------- ------- <S> <C> <C> Available Cash Flow (in thousands)....... $29,928 $19,555 ------- ------- ------- ------- Available Cash Flow Per Unit............. $0.41 $0.34 ------- ------- ------- ------- </TABLE> - 12 -
Part II OTHER INFORMATION Item 1. LEGAL PROCEEDINGS On July 22, 1993 substantially all of the assets of Equitable Capital Management Corporation ("ECMC") were transferred to the Partnership and certain of its wholly-owned subsidiaries pursuant to the Amended and Restated Transfer Agreement dated as of February 23, 1993, as amended and restated on May 28, 1993 ("Transfer Agreement"), among the Partnership, ECMC and Equitable Investment Corporation ("EIC"), a wholly-owned subsidiary of The Equitable Life Assurance Society of the United States ("Equitable"), in exchange for (i) 11,800,000 newly- issued Limited Partnership Interests which were immediately exchanged for 11,800,000 Units, (ii) a newly created Class A Limited Partnership Interest convertible initially into 100,000 Units, and (iii) the assumption by the Partnership and certain of its subsidiaries of certain liabilities of ECMC. The number of Units into which the Class A Limited Partnership Interest is convertible may increase based on the receipt of future contingent incentive fee income. The transfer of such assets and assumption of such liabilities are referred to herein as the "Transfer". On or about June 8, 1993 a lawsuit was filed in the United States District Court of the Southern District of New York by the owner of an annuity contract issued by Equitable against ECMC, the Partnership, Equitable and The Hudson River Trust (PAUL D. WEXLER V. EQUITABLE CAPITAL MANAGEMENT CORPORATION, ET AL.). The Hudson River Trust is the funding vehicle for the variable annuity insurance and variable life insurance products offered by Equitable and The Equitable Variable Life Insurance Company. As of December 31, 1993 the Partnership managed approximately $7.2 billion in net assets invested in The Hudson River Trust. The lawsuit purports to be brought individually and derivatively on behalf of The Hudson River Trust which is an investment company with multiple portfolios registered under the Investment Company Act. The complaint alleges that the transfer to the Partnership of the investment advisory agreement for The Hudson River Trust imposes an unfair burden on The Hudson River Trust under Section 15(f) of the Investment Company Act. The complaint also appears to allege that the fees charged to The Hudson River Trust under the investment advisory agreement constitute excessive compensation for advisory services under Section 36(b) of the Investment Company Act. The complaint seeks a judgment declaring the Transfer to be null and void and terminating the investment advisory agreement between the Partnership and The Hudson River Trust. The complaint also seeks (apparently in the alternative) payment to The Hudson River Trust of certain amounts paid by the Partnership to ECMC pursuant to the Transfer Agreement and payment to The Hudson - 13 -
River Trust of the value of certain compensation arrangements entered into between the Partnership and certain employees of ECMC. On April 23, 1993 the shareholders of each of the portfolios constituting The Hudson River Trust voted to approve the new investment advisory agreement relating to each of the portfolios between the Partnership and The Hudson River Trust. EIC has agreed to bear any legal and other costs of the Partnership relating to the defense or settlement of the lawsuit. In addition, since the investment advisory relationship with The Hudson River Trust was an important factor in the Partnership's decision to enter into the Transfer Agreement, ECMC, EIC and the Partnership have agreed in principle that ECMC or EIC will make a cash contribution to the Partnership in order to reflect lost value to the Partnership attributable to any loss in revenue resulting from a settlement of the lawsuit or a final, non-appealable judgment in favor of the plaintiff. In addition, if such a settlement or final, non-appealable judgment results in the termination of the Partnership's relationship with The Hudson River Trust, ECMC and EIC have agreed in principle that such cash contribution will also reflect any costs incurred by the Partnership relating to the termination of such relationship. Neither ECMC nor EIC will receive any Limited Partnership Interest or Units in return for such cash contribution. On February 18, 1994 the Court ordered the complaint dismissed. Plaintiff filed an appeal. On May 3, 1994 the action was settled and plaintiff withdrew its appeal with prejudice and without the payment of any money or the incurrence of any liability by the Partnership. Item 2. CHANGES IN SECURITIES See Item 5 "Other Information". Item 3. DEFAULTS UPON SENIOR SECURITIES None Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None Item 5. OTHER INFORMATION The Partnership entered into a Revolving Credit and Term Loan Agreement dated as of February 22, 1994 ("Credit Agreement") with a group of banks under which the Partnership may borrow up to $100 million. The Partnership will use the proceeds of borrowings under the Credit Agreement to finance sales of shares of mutual funds sponsored by the Partnership and to finance acquisitions. - 14 -
On May 6, 1994 the Partnership and Equitable entered into a Contribution Agreement ("Contribution Agreement") pursuant to which Equitable purchased $50 million of a new Class B Limited Partnership Interest in the Partnership. The Partnership will use the proceeds to take advantage of growth opportunities and to finance sales of shares of mutual funds sponsored by the Partnership. The Class B Limited Partnership Interest issued under the Contribution Agreement will be converted into 2,266,288 newly issued Units after the issuance of the Units upon conversion has been approved by the holders of a majority of the outstanding Units. Equitable currently owns approximately 62% of the outstanding Units and will own approximately 63% of the outstanding Units after conversion of the Class B Limited Partnership Interest. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 1. Revolving Credit and Term Loan Agreement dated as of February 22, 1994 among the Partnership, The First National Bank of Boston and the Banks party thereto. 2. Contribution Agreement dated May 6, 1994 between the Partnership and The Equitable Life Assurance Society of the United States. 3. Amendment dated May 6, 1994 to Agreement of Limited Partnership (as Amended and Restated) of Alliance Capital Management L.P. (b) Reports on Form 8-K None - 15 -
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALLIANCE CAPITAL MANAGEMENT L.P. Dated: May 13, 1994 By: Alliance Capital Management Corporation, its General Partner By:/s/ Robert H. Joseph, Jr. ------------------------------ Robert H. Joseph, Jr. Senior Vice President-Finance and Chief Accounting Officer - 16 -