FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 ------------------------------------------------- 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 HOLDING L.P. (Formerly Alliance Capital Management L.P.) - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3434400 - -------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1345 Avenue of the Americas, New York, NY 10105 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (212) 969-1000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of Units representing assignments of beneficial ownership of Limited Partnership Interests outstanding as of September 30, 1999 was 171,265,623 Units.
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P. (Formerly Alliance Capital Management L.P.) Index to Form 10-Q Part I FINANCIAL INFORMATION --------------------- Item 1. Financial Statements Page Condensed Consolidated Statements of Financial Condition 1 Condensed Consolidated Statements of Income 2 Condensed Consolidated Statements of Changes in Partners' Capital 3 Condensed Consolidated Statements of Cash Flows 4 Notes to Condensed Consolidated Financial Statements 5-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-17 Part II OTHER INFORMATION ----------------- Item 1. Legal Proceedings 18 Item 2. Changes in Securities 18 Item 3. Defaults Upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 19 Item 6. Exhibits and Reports on Form 8-K 19-20
Part I FINANCIAL INFORMATION Item 1. Financial Statements ALLIANCE CAPITAL MANAGEMENT HOLDING L.P. (Formerly Alliance Capital Management L.P.) Condensed Consolidated Statements of Financial Condition (in thousands) <TABLE> ASSETS 9/30/99 12/31/98 ------ ------- -------- (unaudited) <S> <C> <C> Cash and cash equivalents................................... $ 86,138 $ 75,186 Receivable from brokers and dealers for sale of shares of Alliance mutual funds....................... 159,131 159,095 Fees receivable: Alliance mutual funds.................................... 98,195 80,167 Separately managed accounts: Affiliated clients..................................... 6,680 6,682 Third party clients.................................... 89,022 86,166 Investments, available-for-sale............................. 249,952 94,743 Furniture, equipment and leasehold improvements, net........ 129,707 96,401 Intangible assets, net...................................... 99,029 102,001 Deferred sales commissions, net............................. 560,116 375,293 Other assets................................................ 77,024 56,858 ----------- ----------- Total assets............................................. $ 1,554,994 $ 1,132,592 =========== =========== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Liabilities: Payable to Alliance mutual funds for share purchases..... $ 211,361 $ 199,316 Accounts payable and accrued expenses.................... 202,264 202,980 Accrued compensation and benefits........................ 259,519 106,929 Debt..................................................... 401,963 190,210 Minority interests in consolidated subsidiaries ......... 3,033 2,884 ----------- ---------- Total liabilities...................................... 1,078,140 702,319 Partners' capital........................................ 476,854 430,273 ----------- ----------- Total liabilities and partners' capital................ $1,554,994 $1,132,592 =========== =========== </TABLE> See accompanying notes to condensed consolidated financial statements. 1
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P. (Formerly Alliance Capital Management L.P.) Condensed Consolidated Statements of Income (unaudited) (in thousands, except per Unit amounts) <TABLE> Three Months Ended Nine Months Ended --------------------- -------------------- 9/30/99 9/30/98 9/30/99 9/30/98 ------- ------- ------- ------- Revenues: <S> <C> <C> <C> <C> Investment advisory and services fees: Alliance mutual funds....................................... $207,329 $148,108 $588,156 $435,813 Separately managed accounts: Affiliated clients........................................ 12,222 13,258 39,116 43,444 Third party clients....................................... 87,414 69,392 276,386 224,761 Distribution revenues......................................... 115,483 79,698 314,313 221,987 Shareholder servicing fees.................................... 16,272 11,677 45,069 31,258 Other revenues ............................................... 6,442 4,730 20,806 17,737 -------- -------- ---------- -------- 445,162 326,863 1,283,846 975,000 -------- -------- ---------- -------- Expenses: Employee compensation and benefits............................ 113,521 81,835 334,493 251,865 Promotion and servicing: Distribution plan payments to financial intermediaries: Affiliated................................................ 26,983 22,008 77,858 58,734 Third party............................................... 56,604 47,161 166,473 133,289 Amortization of deferred sales commissions.................. 42,990 29,296 117,688 77,792 Other....................................................... 30,164 22,418 85,060 67,287 General and administrative.................................... 47,825 37,707 135,564 121,104 Interest...................................................... 6,519 1,698 14,499 5,852 Amortization of intangible assets............................. 963 1,115 2,890 3,035 -------- --------- --------- -------- 325,569 243,238 934,525 718,958 -------- --------- --------- -------- Income before income taxes....................................... 119,593 83,625 349,321 256,042 Income taxes.................................................. 17,939 13,377 52,399 40,969 -------- --------- --------- --------- Net income....................................................... $101,654 $ 70,248 $ 296,922 $ 215,073 ======== ========= ========= ========= Net income per Unit: Basic....................................................... $ 0.59 $ 0.41 $ 1.72 $ 1.25 ======== ========= ========= ========= Diluted..................................................... $ 0.57 $ 0.40 $ 1.67 $ 1.22 ======== ========= ========= ========= </TABLE> See accompanying notes to condensed consolidated financial statements. 2
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P. (Formerly Alliance Capital Management L.P.) Condensed Consolidated Statements of Changes in Partners' Capital and Comprehensive Income (unaudited) (in thousands) <TABLE> Three Months Ended Nine Months Ended --------------------- -------------------- 9/30/99 9/30/98 9/30/99 9/30/98 ------- ------- ------- ------- <S> <C> <C> <C> <C> Partners' capital - beginning of period.................... $467,062 $416,908 $430,273 $398,051 Comprehensive income: Net income.......................................... 101,654 70,248 296,922 215,073 Unrealized gain (loss) on investments, net.......... (781) (1,129) 370 (244) Foreign currency translation adjustment, net........ 1,032 (54) 1,035 (54) -------- -------- --------- -------- Comprehensive income................................ 101,905 69,065 298,327 214,775 Capital contribution received from Alliance Capital Management Corporation................................ 90 860 1,156 2,579 Cash distributions to partners.......................... (93,381) (72,201) (260,745) (207,373) Proceeds from Unit options exercised.................... 1,178 654 7,843 7,254 -------- -------- --------- -------- Partners' capital - end of period.......................... $476,854 $415,286 $476,854 $415,286 ======== ======== ======== ======== </TABLE> See accompanying notes to condensed consolidated financial statements. 3
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P. (Formerly Alliance Capital Management L.P.) Condensed Consolidated Statements of Cash Flows (unaudited) (in thousands) <TABLE> Nine Months Ended ----------------------- 9/30/99 9/30/98 ------- ------- <S> <C> <C> Cash flows from operating activities: Net income............................................................ $ 296,922 $ 215,073 Adjustments to reconcile net income to net cash provided from operating activities: Amortization and depreciation....................................... 135,392 92,875 Other, net.......................................................... 16,247 10,781 Changes in assets and liabilities: (Increase) in receivable from brokers and dealers for sale of shares of Alliance mutual funds.............................. (36) (22,037) (Increase) in fees receivable from Alliance mutual funds, affiliated clients and third party clients...................... (20,426) (12,143) (Increase) in deferred sales commissions.......................... (302,511) (180,450) (Increase) in other assets........................................ (23,529) (22,724) Increase in payable to Alliance mutual funds for share purchases....................................................... 12,045 37,850 Increase (decrease) in accounts payable and accrued expenses...... (2,141) 56,477 Increase in accrued compensation and benefits, less deferred compensation.......................................... 149,052 114,321 ---------- -------- Net cash provided from operating activities.................. 261,015 290,023 --------- -------- Cash flows from investing activities: Purchase of investments............................................... (877,790) (309,460) Proceeds from sale of investments..................................... 723,130 293,161 Additions to furniture, equipment and leasehold improvements, net................................................... (47,585) (23,683) Other ................................................................ (142) - ---------- -------- Net cash used in investing activities........................ (202,387) (39,982) ---------- -------- Cash flows from financing activities: Proceeds from borrowings............................................. 1,766,728 683,790 Repayment of debt..................................................... (1,562,375) (572,375) Distributions to partners............................................. (260,744) (207,373) Capital contribution received from Alliance Capital Management Corporation......................................................... 656 329 Unit options exercised................................................ 7,842 7,254 ---------- -------- Net cash used in financing activities........................ (47,893) (88,375) ---------- -------- Effect of exchange rate changes on cash and cash equivalents ............ 217 (54) ---------- -------- Net increase in cash and cash equivalents................................ 10,952 161,612 Cash and cash equivalents at beginning of period......................... 75,186 63,761 ---------- -------- Cash and cash equivalents at end of period............................... $ 86,138 $ 225,373 ========== ========= </TABLE> See accompanying notes to condensed consolidated financial statements. 4
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P. (Formerly Alliance Capital Management L.P.) Notes to Condensed Consolidated Financial Statements September 30, 1999 (unaudited) 1. Reorganization At a special meeting of unitholders held on September 22, 1999, the unitholders of Alliance Capital Management Holding L.P., formerly Alliance Capital Management L.P., ("Alliance Holding" or the "Partnership"), approved both the transfer of Alliance Holding's business to Alliance Capital Management L.P., formerly Alliance Capital Management L.P. II ("Alliance Capital"), a newly-formed private limited partnership, in exchange for all units of Alliance Capital (the "Reorganization") and the amendment and restatement of Alliance Holding's partnership agreement. In connection with the Reorganization, Alliance Holding offered to its unitholders the opportunity to exchange Alliance Holding units for Alliance Capital units on a one-for-one basis (the "Exchange Offer"). Effective at the close of business on October 29, 1999, Alliance Holding transferred its business to Alliance Capital pursuant to the Reorganization and its principal asset will be its interest in Alliance Capital and it will function solely as a holding entity through which public Unitholders will continue to own an indirect interest in Alliance Capital's business. 2. Basis of Presentation The unaudited interim condensed consolidated financial statements of the Partnership included herein have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of (a) financial position at September 30, 1999, (b) results of operations for the three months and nine months ended September 30, 1999 and 1998 and (c) cash flows for the nine months ended September 30, 1999 and 1998, have been made. 3. Reclassification Certain prior period amounts have been reclassified to conform with the current period presentation. 4. Deferred Sales Commissions Sales commissions paid to financial intermediaries in connection with the sale of shares of open-end mutual funds managed by the Partnership sold without a front-end sales charge are capitalized and amortized over periods not exceeding five and one-half years, the period of time estimated by management of the Partnership during which deferred sales commissions are expected to be recovered from distribution plan payments received from those funds and from contingent deferred sales charges received from shareholders of those funds upon the redemption of their shares. Contingent deferred sales charges reduce unamortized deferred sales commissions when received. 5. Commitments and Contingencies On July 25, 1995, a Consolidated and Supplemental Class Action Complaint ("Original Complaint") was filed against Alliance North American Government Income Trust, Inc. (the "Fund"), the Partnership and certain other defendants affiliated with the Partnership alleging violations of federal securities laws, fraud and breach of fiduciary duty in connection with the Fund's investments in Mexican and Argentine 5
securities. On September 26, 1996, the United States District Court for the Southern District of New York granted the defendants' motion to dismiss all counts of the Original Complaint. On October 29, 1997, the United States Court of Appeals for the Second Circuit affirmed that decision. On October 29, 1996, plaintiffs filed a motion for leave to file an amended complaint. The principal allegations of the proposed amended complaint are that (i) the Fund failed to hedge against currency risk despite representations that it would do so, (ii) the Fund did not properly disclose that it planned to invest in mortgage-backed derivative securities, and (iii) two advertisements used by the Fund misrepresented the risks of investing in the Fund. On October 15, 1998, the United States Court of Appeals for the Second Circuit issued an order granting plaintiffs' motion to file an amended complaint alleging that the Fund misrepresented its ability to hedge against currency risk and denying plaintiffs' motion to file an amended complaint alleging that the Fund did not properly disclose that it planned to invest in mortgaged-backed derivative securities and that certain advertisements used by the Fund misrepresented the risks of investing in the Fund. The Partnership believes that the allegations in the proposed amended complaint are without merit and intends to vigorously defend against this action. While the ultimate outcome of this matter cannot be determined at this time, management of the Partnership does not expect that it will have a material adverse effect on the Partnership's results of operations or financial condition. In connection with the Reorganization and Exchange Offer, on September 29, 1999, a purported class action complaint was filed in the Court of Chancery of the State of Delaware in and for New Castle County against Alliance Holding, Alliance Capital, Alliance Capital Management Corporation and certain other defendants affiliated with the Partnership which sought, among other things, to enjoin the consummation of the reorganization and exchange offer and alleged, among other things, the amended and restated Alliance Holding partnership agreement adversely effected the Partnership Unitholders. On October 29, 1999, the parties to the litigation brought against Alliance Holding, Alliance Capital, Alliance Capital Management Corporation and certain other defendants affiliated with the Partnership entered into a memorandum of understanding setting forth the parties' agreement in principle to the terms of a proposed settlement of that action. Management of the Partnership does not believe that the resolution of this matter will have a material adverse effect on the Partnership's results of operations or financial condition. 6. Income Taxes The Partnership is a publicly traded partnership for federal income tax purposes and, accordingly, is not subject to federal or state corporate income taxes. However, the Partnership is subject to the New York City unincorporated business tax and a 3.5% federal tax on partnership gross income from the active conduct of a trade or business. Domestic corporate subsidiaries of the Partnership, which are subject to federal, state and local income taxes, file a consolidated federal income tax return and separate state and local income tax returns. Foreign corporate subsidiaries are generally subject to taxes in the foreign jurisdictions where they are located. 7. Net Income Per Unit Basic net income per Unit is derived by reducing net income for each period by 1% for the general partnership interest held by the General Partner and dividing the remaining 99% by the weighted average number of Units outstanding during each period. Diluted net income per Unit is derived by reducing net income for each period by 1% for the general partnership interest held by the General Partner and dividing the remaining 99% by the total of the weighted average number of Units outstanding during each period and the dilutive Unit equivalents resulting from outstanding employee Unit options. 6
<TABLE> Three Months Ended Nine Months Ended ----------------------- ------------------- 9/30/99 9/30/98 9/30/99 9/30/98 ------- ------- ------- ------- (in thousands, except per Unit amounts) <S> <C> <C> <C> <C> Net income....................................... $101,654 $ 70,248 $296,922 $215,073 ======== ======== ======== ======== Weighted average Units outstanding- Basic net income per Unit...................... 171,228 170,204 170,947 169,810 Dilutive effect of employee Unit options......... 5,242 5,025 5,194 5,239 -------- -------- -------- -------- Weighted average Units outstanding- Diluted net income per Unit.................... 176,470 175,229 176,141 175,049 ======== ======== ======== ======== Basic net income per Unit........................ $ 0.59 $ 0.41 $ 1.72 $ 1.25 ======= ======= ======= ======= Diluted net income per Unit...................... $ 0.57 $ 0.40 $ 1.67 $ 1.22 ======= ======= ======= ======= </TABLE> 8. Supplemental Cash Flow Information Cash payments for interest and income taxes were as follows (in thousands): Three Months Ended Nine Months Ended ------------------ ------------------- 9/30/99 9/30/98 9/30/99 9/30/98 ------- ------- ------- ------- Interest.................. $ 3,655 $ 782 $ 7,763 $ 3,325 Income taxes.............. 16,030 4,188 80,304 14,368 9. Accounting Pronouncement In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, ("SFAS 133")"Accounting for Derivative Instruments and Hedging Activities". Under this Statement, an entity is required to recognize derivative instruments as either assets or liabilities in the statement of financial condition and measure those instruments at fair value. In addition, any entity that elects to apply hedge accounting is required to establish at the inception of the hedge the method it will use for assessing effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. Management of the Partnership intends to adopt this Statement on January 1, 2001 and does not believe that the adoption of the Statement will have a material effect on its results of operations, liquidity, or capital resources. 10. Cash Distribution On October 14, 1999, the General Partner declared a distribution of $96,878,000 or $0.56 per Unit representing the Available Cash Flow (as defined in the Partnership Agreement) of the Partnership for the three months ended September 30, 1999. The distribution is payable on November 15, 1999 to holders of record on October 28, 1999. 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Reorganization At a special meeting of unitholders held on September 22, 1999, the unitholders of Alliance Capital Management Holding L.P., formerly Alliance Capital Management L.P., ("Alliance Holding" or the "Partnership"), approved both the transfer of Alliance Holding's business to Alliance Capital Management L.P., formerly Alliance Capital Management L.P. II ("Alliance Capital"), a newly-formed private limited partnership, in exchange for all units of Alliance Capital (the "Reorganization") and the amendment and restatement of Alliance Holding's partnership agreement. In connection with the Reorganization, Alliance Holding offered to its unitholders the opportunity to exchange Alliance Holding units for Alliance Capital units on a one-for-one basis (the "Exchange Offer"). Effective at the close of business on October 29, 1999, Alliance Holding transferred its business to Alliance Capital pursuant to the Reorganization and its principal asset will be its interest in Alliance Capital and it will function solely as a holding entity through which public Unitholders will continue to own an indirect interest in Alliance Capital's business. General Through October 29, 1999, the Partnership offered and since that date Alliance Capital has offered a broad range of investment management products and services to meet the varied needs and objectives of individual and institutional investors. The Partnership derived substantially all of its revenues and net income from fees received for providing: (a) investment advisory, distribution and related services to the Alliance mutual funds, (b) investment advisory services to affiliated clients including The Equitable Life Assurance Society of the United States ("ELAS"), a wholly-owned subsidiary of AXA Financial, Inc. ("AXA Financial") and certain other Equitable affiliates and (c) investment advisory services to separately managed accounts for unaffiliated institutional investors and high-net-worth individuals ("third party clients"). The Alliance mutual funds consist primarily of a broad range of open-end load and closed-end mutual funds ("mutual funds"), variable life insurance and annuity products, including The Hudson River Trust, cash management products, principally money market funds, and certain structured products and hedge funds. The Partnership's revenues are largely dependent on the total value and composition of assets under its management. Assets under management were $317.3 billion as of September 30, 1999, an increase of 31.2% from September 30, 1998 primarily as a result of market appreciation, good investment performance, and strong net sales of Alliance mutual funds. Active equity and balanced account assets under management, which comprise approximately 55% of total assets under management, were 46% higher. Active fixed income account assets under management, which comprise approximately 35% of total assets under management, increased by 14%. In the third quarter of 1999, sales of Alliance mutual fund shares, excluding cash management products, were $12.3 billion compared to sales of $8.0 billion and $13.8 billion in the third quarter of 1998 and the second quarter of 1999, respectively. The increase in mutual fund sales over the 1998 third quarter, principally domestic U.S. equity mutual funds, was offset partially by an increase in mutual fund redemptions, and resulted in net mutual fund sales of $5.5 billion for the third quarter 1999, an increase of 44.7% from $3.8 billion for the third quarter 1998. 8
Assets Under Management (1): (Dollars in billions) 9/30/99 9/30/98 $ Change % Change - ------------------------------------------------------------------------------ Alliance mutual funds: Mutual funds $ 79.6 $ 51.2 $28.4 55.5% Variable products 34.5 25.0 9.5 38.8 Cash management products 29.0 23.3 5.7 24.5 - ------------------------------------------------------------------------------ 143.1 99.5 43.6 43.8 - ------------------------------------------------------------------------------ Separately managed accounts: Affiliated clients 29.5 29.1 0.4 1.4 Third party clients 144.7 113.3 31.4 27.7 - ------------------------------------------------------------------------------ 174.2 142.4 31.8 22.3 - ------------------------------------------------------------------------------ Total $317.3 $241.9 $75.4 31.2% - ------------------------------------------------------------------------------ Assets under management at September 30, 1999 were $317.3 billion, an increase of $75.4 billion or 31.2% from September 30, 1998. The Partnership's mutual fund assets under management at September 30, 1999 were $143.1 billion, an increase of $43.6 billion or 43.8% from September 30, 1998, due principally to net sales of mutual funds and variable products of $22.0 billion and market appreciation of $16.8 billion. Separately managed account assets under management at September 30, 1999 for third party clients and affiliated clients were $174.2 billion, an increase of $31.8 billion or 22.3% from September 30, 1998. The increase was primarily due to market appreciation of $31.4 billion. Assets under management decreased $3.7 billion or 1.2% from $321.0 billion at June 30, 1999, primarily due to market depreciation offset partially by net sales of Alliance mutual funds and net inflows from separately managed accounts. Assets Under Management (1): (Dollars in billions) 9/30/99 9/30/98 $ Change % Change - ------------------------------------------------------------------------------ Active equity & balanced Domestic $155.3 $110.6 $44.7 40.4% Global & international 20.8 10.2 10.6 103.9 Active fixed income Domestic 94.7 85.9 8.8 10.2 Global & international 15.8 11.4 4.4 38.6 Index Domestic 25.7 20.5 5.2 25.4 Global & international 5.0 3.3 1.7 51.5 - ------------------------------------------------------------------------------ Total $317.3 $241.9 $75.4 31.2% - ------------------------------------------------------------------------------ <TABLE> Average Assets Under Management (1): Three months ended Nine months ended ---------------------------- ---------------------------- (Dollars in billions) 9/30/99 9/30/98 % Change 9/30/99 9/30/98 % Change - -------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Alliance mutual funds $ 140.0 $ 102.7 36.3% $ 130.8 $ 97.5 34.2% Separately managed accounts: Affiliated clients 30.0 29.1 3.1 29.8 29.2 2.1 Third party clients 147.1 118.5 24.1 144.4 116.7 23.7 - -------------------------------------------------------------------------------------------------- Total $317.1 $250.3 26.7% $ 305.0 $243.4 25.3% - -------------------------------------------------------------------------------------------------- </TABLE> 9
<TABLE> Changes in Assets Under Management(1): (Dollars in billions) 1999 1998 - --------------------------------------------------------------------------------------------------------------- Separately Alliance Separately Alliance Managed Mutual Managed Mutual Accounts Funds Total Accounts Funds Total - --------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Balance at January 1, $168.1 $118.6 $286.7 $133.7 $85.0 $218.7 - --------------------------------------------------------------------------------------------------------------- New business/sales 6.1 37.8 43.9 6.0 26.8 32.8 Terminations/redemptions (3.0) (18.8) (21.8) (3.2) (11.5) (14.7) Net cash management sales - 2.5 2.5 - 2.6 2.6 Cash flow (3.1) (0.8) (3.9) 0.9 (0.8) 0.1 Transfers (0.5) 0.5 - - - - Appreciation (depreciation) 6.6 3.3 9.9 5.0 (2.6) 2.4 - --------------------------------------------------------------------------------------------------------------- Net change 6.1 24.5 30.6 8.7 14.5 23.2 - --------------------------------------------------------------------------------------------------------------- Balance at September 30, $174.2 $143.1 $317.3 $142.4 $99.5 $241.9 - --------------------------------------------------------------------------------------------------------------- (1) Includes 100% of assets under management by unconsolidated joint venture subsidiaries and affiliates. Includes $2.0 billion mutual fund assets and $0.5 billion separately managed account assets at September 30, 1999 and $0.9 billion mutual fund assets and $0.4 billion separately managed account assets at September 30, 1998. </TABLE> Assets under management at September 30, 1999 were $317.3 billion, a decrease of $3.7 billion or 1.2% from June 30, 1999 and an increase of $30.6 billion or 10.7% from December 31, 1998. Alliance mutual fund assets under management at September 30, 1999 were $143.1 billion, an increase of $2.2 billion or 1.6% from June 30, 1999 and an increase of $24.5 billion or 20.7% from December 31, 1998. The increase from June 30, 1999 was principally due to net sales of mutual funds and cash management products of $5.5 billion and $1.7 billion, respectively, reduced by market depreciation of $4.8 billion. The increase from December 31, 1998 was due principally to net sales of mutual funds and variable products of $17.4 billion and $1.6 billion, respectively, and market appreciation of $3.3 billion. Separately managed account assets under management at September 30, 1999 for third party clients and affiliated clients were $174.2 billion, an decrease of $5.9 billion or 3.3% from June 30, 1999 and an increase of $6.1 billion or 3.6% from December 31, 1998. The decrease from June 30, 1999 was primarily due to market depreciation of $6.6 billion, net asset outflows from affiliated client accounts of $0.1 billion, and third party client account terminations and net asset withdrawals of $1.7 billion. This decrease was partially offset by new third party client account assets of approximately $2.4 billion. The increase from December 31, 1998 was primarily due to market appreciation of $6.6 billion and new client accounts of $6.1 billion, net asset additions to affiliated client accounts of $1.1 billion offset by net third party client account terminations and net asset withdrawals of $7.2 billion and transfers out of affiliated client accounts of $0.5 billion into mutual funds. <TABLE> Consolidated Results of Operations Three months ended Nine months ended (Dollars & Units in millions, ------------------------------ ----------------------------- except per Unit amounts) 9/30/99 9/30/98 % Change 9/30/99 9/30/98 % Change - -------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Net income $101.7 $70.2 44.9% $296.9 $ 215.1 38.0% Net income per Unit(1): Basic $0.59 $0.41 43.9 $1.72 $1.25 37.6 Diluted $0.57 $0.40 42.5 $1.67 $1.22 36.9 Weighted average number of Units outstanding: Basic 171.2 170.2 0.6 170.9 169.8 0.6 Diluted 176.5 175.2 0.7 176.1 175.0 0.6 Pre-tax margin(2): 36.3% 33.8% - 36.0% 34.0% - - --------------------------------------------------------------------------------------------------------------- (1) Unit and per Unit amounts for all periods prior to the two-for-one Unit split in 1998 have been restated. (2) Calculated after netting distribution revenues against total expenses. </TABLE> 10
Net income for the three months ended September 30, 1999 increased $31.5 million or 44.9% to $101.7 million from $70.2 million for the three months ended September 30, 1998. The increase was principally due to an increase in investment advisory and services fees resulting primarily from higher average assets under management. <TABLE> Revenues Three months ended Nine months ended ------------------------------ ------------------------------- (Dollars in millions) 9/30/99 9/30/98 % Change 9/30/99 9/30/98 % Change - --------------------------------------------------------------------------------------------------------------- Investment advisory and services fees: <S> <C> <C> <C> <C> <C> <C> Alliance mutual funds $207.3 $148.1 40.0% $ 588.2 $435.8 35.0% Separately managed accounts: Affiliated clients 12.2 13.2 (7.6) 39.1 43.4 (9.9) Third party clients 87.4 69.4 25.9 276.3 224.8 22.9 Distribution revenues 115.5 79.7 44.9 314.3 222.0 41.6 Shareholder servicing fees 16.3 11.7 39.3 45.1 31.3 44.1 Other revenues 6.5 4.7 38.3 20.8 17.7 17.5 - --------------------------------------------------------------------------------------------------------------- Total $445.2 $326.8 36.2% $1,283.8 $975.0 31.7% - --------------------------------------------------------------------------------------------------------------- </TABLE> INVESTMENT ADVISORY AND SERVICES FEES Investment advisory and services fees, the largest component of the Partnership's revenues, are generally calculated as a small percentage of the value of assets under management and vary with the type of account managed. Fee income is therefore affected by changes in the amount of assets under management, including market appreciation or depreciation, the addition of new client accounts or client contributions of additional assets to existing accounts, withdrawals of assets from and termination of client accounts, purchases and redemptions of mutual fund shares, and shifts of assets between accounts or products with different fee structures. Certain investment advisory agreements provide for performance fees in addition to a base fee. Performance fees are earned when investment performance exceeds a contractually agreed upon benchmark, or calculated as a percentage of investment returns of a portfolio. Accordingly, these fees may increase the volatility of the Partnership's revenues and earnings and are more likely to be higher in favorable markets and lower in unfavorable markets. Performance fees increased to $59.8 million for the nine months ended September 30, 1999 from $44.6 million for the nine months ended September 30, 1998. Performance fees were $9.2 million for the three months ended September 30, 1999 compared to $1.6 million for the three months ended September 30, 1998. Investment advisory and services fees from Alliance mutual funds increased by $59.2 million or 40.0% for the three months ended September 30, 1999, primarily as a result of a 36.3% increase in average assets under management and a $4.9 million increase in performance fees from certain hedge funds. Investment advisory and services fees from Alliance mutual funds increased by $152.4 million or 35.0% for the nine months ended September 30, 1999, primarily as a result of a 34.2% increase in average assets under management and a $14.2 million increase in performance fees from certain hedge funds. Investment advisory and services fees from affiliated clients, primarily the General Accounts of ELAS, decreased by $1.0 million or 7.6% and $4.3 million or 9.9% for the three months and nine months ended September 30, 1999, respectively, due to lower performance fees and a decrease in base investment advisory and services fees. Investment advisory and services fees from third party clients increased by $18.0 million or 25.9% and $51.5 million or 22.9% for the three and nine months ended September 30, 1999 principally due to an increase in average assets under management of 24.1% and 23.7%, respectively. The increase in third party client assets under management was primarily a result of market appreciation. DISTRIBUTION REVENUES The Partnership's subsidiary, Alliance Fund Distributors, Inc. ("AFD"), acts as distributor of the Alliance mutual funds and receives distribution plan fees from those funds in reimbursement of distribution expenses 11
it incurs. Distribution revenues increased 44.9% for the three months and 41.6% for the nine months ended September 30, 1999 principally due to higher average mutual fund assets under management resulting from strong sales of Back-End Load Shares under the Partnership's mutual fund distribution system (the "System") described under "Capital Resources and Liquidity" and market appreciation. SHAREHOLDER SERVICING FEES The Partnership's subsidiaries, Alliance Fund Services, Inc. and ACM Fund Services S.A., provide transfer agency services to the Alliance mutual funds. Shareholder servicing fees increased 39.3% for the three months and 44.1% for the nine months ended September 30, 1999, as a result of increases in the number of mutual fund shareholder accounts serviced and increases in fee rates. The number of shareholder accounts serviced increased to approximately 4.8 million as of September 30, 1999 compared to 3.5 million as of September 30, 1998. OTHER REVENUES Other revenues consist principally of administration and recordkeeping services provided to the Alliance mutual funds and the General Accounts of ELAS and its insurance subsidiary. Investment income and changes in value of other investments are also included in other revenues. Other revenues increased for the three and nine months ended September 30, 1999, principally as a result of increased market values of the Partnership's hedge fund investments and dividend income. <TABLE> EXPENSES Three months ended Nine months ended ------------------------------- ------------------------------- (Dollars in millions) 9/30/99 9/30/98 % Change 9/30/99 9/30/98 % Change - ------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Employee compensation and benefits $113.5 $ 81.8 38.8% $334.5 $251.9 32.8% Promotion and servicing 156.8 120.9 29.7 447.1 337.1 32.6 General and administrative 47.8 37.7 26.8 135.5 121.1 11.9 Interest 6.5 1.7 282.4 14.5 5.9 145.8 Amortization of intangible assets 1.0 1.1 (9.1) 2.9 3.0 (3.3) - ------------------------------------------------------------------------------------------------------------- Total $325.6 $243.2 33.9% $934.5 $719.0 30.0% - ------------------------------------------------------------------------------------------------------------- </TABLE> EMPLOYEE COMPENSATION AND BENEFITS Employee compensation and benefits include salaries, commissions, fringe benefits and incentive compensation based on profitability. Provisions for future payments to be made under certain deferred compensation arrangements are also included in employee compensation and benefits expense. Employee compensation and benefits increased 38.8% for the three months and 32.8% for the nine months ended September 30, 1999 primarily as a result of higher incentive compensation due to increased operating earnings and increased base compensation and commissions. Base compensation increased principally due to an increase in the number of employees working in the Partnership's mutual fund and technology areas combined with salary increases. The Partnership had 2,299 employees at September 30, 1999 compared to 1,917 at September 30, 1998. Commissions increased primarily due to higher mutual fund sales. PROMOTION AND SERVICING Promotion and servicing expenses include distribution plan payments to financial intermediaries for distribution of the Partnership's sponsored mutual funds and cash management services' products and amortization of deferred sales commissions paid to financial intermediaries for the sale of Back-End Load Shares under the System. See "Capital Resources and Liquidity". Also included in this expense category are travel and entertainment, advertising, promotional materials, and investment meetings and seminars for financial intermediaries that distribute the Partnership's mutual fund products. Promotion and servicing expenses increased 29.7% for the three months and 32.6% for the nine months ended September 30, 1999 primarily due to increased distribution plan payments resulting from higher average domestic, non U.S. and cash management mutual fund assets under management. An increase in amortization of deferred sales commissions as a result of higher sales of Back-End Load Shares (see "Capital Resources and Liquidity") also contributed to the increase in promotion and servicing expense. Other 12
promotion and servicing expenses increased primarily as a result of higher travel and entertainment costs and higher promotional expenditures incurred in connection with mutual fund sales initiatives. GENERAL AND ADMINISTRATIVE General and administrative expenses include technology, professional fees, occupancy, communications, equipment and similar expenses. General and administrative expenses increased 26.8% and 11.9% for the three and nine months ended September 30, 1999 due principally to higher expenses incurred in connection with the Year 2000 project and other technology initiatives and increased occupancy costs. A $10.0 million provision was recorded in March 1998 for the future acquisition of the minority interest in Cursitor Alliance. See "Capital Resources and Liquidity". INTEREST Interest expense is incurred on the Partnership's borrowings and on deferred compensation owed to employees. Interest expense increased primarily as a result of higher debt and an increase in deferred compensation liabilities. See "Capital Resources and Liquidity". TAXES ON INCOME The Partnership is a publicly traded partnership for federal income tax purposes and, accordingly, is not subject to federal or state corporate income taxes. However, the Partnership is subject to the New York City unincorporated business tax and a 3.5% federal tax on partnership gross income from the active conduct of a trade or business. Domestic corporate subsidiaries of the Partnership, which are subject to federal, state and local income taxes, file a consolidated federal income tax return and separate state and local income tax returns. Foreign corporate subsidiaries are generally subject to taxes in the foreign jurisdictions where they are located. Income tax expense increased primarily as a result of higher pre-tax income. CAPITAL RESOURCES AND LIQUIDITY Partners' capital was $476.9 million at September 30, 1999, an increase of $46.6 million or 10.8% from $430.3 at December 31, 1998 and an increase of $9.8 million or 2.1% from $467.1 at June 30,1999. Cash flow from operations and proceeds from borrowings have been the Partnership's principal sources of working capital. The Partnership's cash and cash equivalents increased by $11.0 million for the nine months ended September 30, 1999. Cash inflows for the first nine months included $261.0 million from operations, proceeds from borrowings net of debt repayments of $204.4 million and $7.8 million of proceeds from exercises of Unit options. Cash outflows included $260.7 million in distributions to Unitholders, $47.6 million in capital expenditures and net purchases of investments of $154.7 million. Under certain circumstances through February 28, 2006, the Partnership has an option to purchase the minority interest in Cursitor Alliance LLC ("Cursitor Alliance "), a subsidiary of the Partnership formed in connection with an acquisition in 1996, and the holders of the minority interest have an option to sell the minority interest to the Partnership for cash, Units, or a combination thereof with a value of not less than $10.0 million or more than $37.0 million ("Buyout Price"). The Buyout Price will be determined based on the amount of global asset allocation investment advisory revenues earned by Cursitor Alliance during a twelve-month period ending on the February 28th preceding the date either option is exercised. Due to the substantial decline in Cursitor Alliance revenues through March 1998, management of the Partnership estimated that the Buyout Price for the minority interest will be $10.0 million, which will be substantially higher than its estimated fair value. Accordingly, the Partnership recorded a $10.0 million provision for the Buyout Price in the first quarter of 1998. The Partnership's mutual fund distribution system (the "System") includes a multi-class share structure. The System permits the Partnership's open-end mutual funds to offer investors various options for the purchase of mutual fund shares, including the purchase of Front-End Load Shares and Back-End Load Shares. The Front-End Load Shares are subject to a conventional front-end sales charge paid by investors to AFD at the time of sale. AFD in turn compensates the financial intermediaries distributing the funds from the front-end sales charge paid by investors. For Back-End Load Shares, investors do not pay a front-end sales charge 13
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 $302.5 million and $180.5 million for the nine months ended September 30, 1999 and September 30, 1998, 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. During July 1999, the Partnership entered into a new $200 million three year revolving credit facility with a group of commercial banks that increased the Partnership's borrowing capacity under all facilities to $625 million. The new revolving credit facility, the terms of which are generally similar to the previously existing $425 million credit facility, will be used to fund commission payments to financial intermediaries for the sale of Back-End Load Shares under the Partnership's mutual fund distribution system and for general working capital purposes. Both facilities contain covenants which require the Partnership to, among other things, meet certain financial ratios. The Partnership has a $425 million revolving credit facility with a group of commercial banks and a $425 million commercial paper program. Borrowings under this facility and the Partnership's commercial paper program may not exceed $425 million in the aggregate. The $425 million revolving credit facility is used to provide backup liquidity for commercial paper issued under the Partnership's commercial paper program, to fund commission payments to financial intermediaries for the sale of Back-End Load Shares under the Partnership's mutual fund distribution system, and for general working capital purposes. As of September 30, 1999, the Partnership had $398.6 million principal amount of commercial paper outstanding, an increase of $218.6 million from December 31, 1998, to fund commission payments to financial intermediaries and for capital expenditures. There are no borrowings outstanding under either of the Partnership's revolving credit facilities. The Partnership's substantial equity base and access to public and private debt, at competitive interest rates and other terms, should provide adequate liquidity for its general business needs. Management of the Partnership believes that cash flow from operations and the issuance of debt and Units will provide the Partnership with the financial resources to meet its capital requirements for mutual fund sales, capital expenditures and its other working capital requirements. Year 2000 Many computer systems and applications that process transactions use two digit date fields for the year of a transaction, rather than the full four digits. If these systems are not modified and replaced, transactions occurring after 1999 may be processed as year "1900", which could result in processing inaccuracies and inoperability at or after the Year 2000. The Partnership utilizes a number of computer systems and applications that it either has developed internally or licensed from third-party suppliers. In addition, the Partnership is dependent on third-party suppliers for certain systems applications and for the electronic receipt of information critical to its business. The Year 2000 issue is a high priority for the Partnership. During 1997, the Partnership began a formal Year 2000 initiative, which established a structured and coordinated process to deal with the Year 2000 issue. As part of its initiative, the Partnership established a Year 2000 project office to manage the Year 2000 initiative focusing on both information technology and non-information technology systems. The Year 2000 project office meets periodically with the Audit Committee of the Board of Directors and executive management to review the status of the Year 2000 efforts. The Partnership has also retained the services of a number of consulting firms which have expertise in advising and assisting with regard to Year 2000 issues. 14
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 and nonmission critical systems were contacted to verify whether their systems and applications will be Year 2000 compliant and their responses have been evaluated. All of those contacted have responded and have informed the Partnership that their systems and applications are or will be Year 2000 compliant. All mission critical and nonmission critical systems supplied by third parties have been tested. The Partnership expects all testing will be completed before the end of 1999. The Partnership has remediated, replaced or retired all of its noncompliant mission critical systems and nonmission critical systems and applications. 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 all mission critical systems and nonmission critical systems. Integrated systems tests were conducted to verify that the systems would continue to work together. Full integration testing of all mission critical and nonmission critical systems is complete. Testing of interfaces with third-party suppliers has been completed. The Partnership has completed an inventory of its facilities and related technology applications and has substantially completed and tested these systems. The Partnership anticipates these systems will 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, has developed Year 2000 specific contingency plans with emphasis on mission critical functions. These plans seek to provide alternative methods of processing in the event of a failure. The current cost estimate of the Year 2000 initiative is approximately $45 million. These costs consist principally of modification and testing and costs to develop formal Year 2000 specific contingency plans. These costs, which will generally be expensed as incurred, will be funded from the Partnership's operations and the issuance of debt. Through September 30, 1999, the Partnership had incurred approximately $41.0 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 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 services they require. 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 or the effects of any particular failure to be Year 2000 compliant. 15
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). 16
COMMITMENTS AND CONTINGENCIES The Partnership's capital commitments, which consist primarily of operating leases for office space, are generally funded from future operating cash flows. On July 25, 1995, a Consolidated and Supplemental Class Action Complaint ("Original Complaint") was filed against Alliance North American Government Income Trust, Inc. (the "Fund"), the Partnership and certain other defendants affiliated with the Partnership alleging violations of federal securities laws, fraud and breach of fiduciary duty in connection with the Fund's investments in Mexican and Argentine securities. On September 26, 1996, the United States District Court for the Southern District of New York granted the defendants' motion to dismiss all counts of the Original Complaint. On October 29, 1997, the United States Court of Appeals for the Second Circuit affirmed that decision. On October 29, 1996, plaintiffs filed a motion for leave to file an amended complaint. The principal allegations of the proposed amended complaint are that (i) the Fund failed to hedge against currency risk despite representations that it would do so, (ii) the Fund did not properly disclose that it planned to invest in mortgage-backed derivative securities, and (iii) two advertisements used by the Fund misrepresented the risks of investing in the Fund. On October 15, 1998, the United States Court of Appeals for the Second Circuit issued an order granting plaintiffs' motion to file an amended complaint alleging that the Fund misrepresented its ability to hedge against currency risk and denying plaintiffs' motion to file an amended complaint alleging that the Fund did not properly disclose that it planned to invest in mortgaged-backed derivative securities and that certain advertisements used by the Fund misrepresented the risks of investing in the Fund. The Partnership believes that the allegations in the proposed amended complaint are without merit and intends to vigorously defend against this action. While the ultimate outcome of this matter cannot be determined at this time, management of the Partnership does not expect that it will have a material adverse effect on the Partnership's results of operations or financial condition. In connection with the Partnership's reorganization, on September 29, 1999, a purported class action complaint was filed in the Court of Chancery of the State of Delaware in and for New Castle County against Alliance Holding, Alliance Capital, Alliance Capital Management Corporation and certain other defendants affiliated with the Partnership which sought, among other things, to enjoin the consummation of the reorganization and exchange offer and alleged, among other things, the amended and restated Alliance Holding partnership agreement adversely effected the Partnership Unitholders. On October 29, 1999, the parties to the litigation brought against Alliance Holding, Alliance Capital, Alliance Capital Management Corporation and certain other defendants affiliated with the Partnership entered into a memorandum of understanding setting forth the parties' agreement in principle to the terms of a proposed settlement of that action. Management of the Partnership does not believe that the resolution of this matter will have a material adverse effect on the Partnership's results of operations or financial condition. On August 26, 1999, Metropolitan Life Insurance Company ("MetLife") and GenAmerica Corporation ("GenAmerica"), parent company of General American, announced a definitive agreement pursuant to which MetLife assumed all of General American's liabilities under its funding agreements. As a result, the letters of credit issued in favor of four Money Market Funds sponsored by the Partnership, to support their $1.00 net asset value in the event the funding agreements were not paid, have been terminated. The resolution of this matter did not have a material adverse effect on the Partnership's results of operations or financial condition. 17
CHANGES IN ACCOUNTING PRINCIPLES In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 133, ("SFAS 133") "Accounting for Derivative Instruments and Hedging Activities". Under this Statement, an entity is required to recognize derivative instruments as either assets or liabilities in the statement of financial position and measure those instruments at fair value. In addition, any entity that elects to apply hedge accounting is required to establish at the inception of the hedge, the method it will use for assessing effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. Management of the Partnership intends to adopt this Statement on January 1, 2001 and does not believe that the adoption of the Statement will have a material effect on its results of operations, liquidity, or capital resources. CASH DISTRIBUTIONS The Partnership is required to distribute all of its Available Cash Flow, as defined in the Partnership Agreement, to the General Partner and Unitholders. The Partnership's Available Cash Flow and Distributions per Unit for the three and nine months ended September 30, 1999 and 1998 were as follows: <TABLE> Three months ended Nine months ended ------------------ -------------------- 9/30/99 9/30/98 9/30/99 9/30/98 - ------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Available Cash Flow (in thousands) $96,878 $67,072 $283,574 $204,366 Distributions Per Unit $ 0.56 $ 0.39 $ 1.64 $ 1.19 - ------------------------------------------------------------------------------------------- </TABLE> FORWARD-LOOKING STATEMENTS Certain statements provided by the Partnership in this report are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. The most significant of such factors include, but are not limited to, the following: the performance of financial markets, the investment performance of the Partnership's sponsored investment products and separately managed accounts, general economic conditions, future acquisitions, competitive conditions, government regulations, including changes in tax rates, and the risks associated with Year 2000 issues. The Year 2000 issues include uncertainties regarding among other things, the inability to locate, correct and successfully test all relevant computer code, the continued availability of certain resources including personnel and timely and accurate responses and corrections by third parties. These uncertainties may result in unanticipated costs associated with Year 2000 issues and failure to meet schedules for Year 2000 compliance. The Partnership cautions readers to carefully consider such factors. Further, such forward-looking statements speak only as of the date on which such statements are made; the Partnership undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. 18
Part II OTHER INFORMATION ----------------- Item 1. Legal Proceedings There have been no material developments in the legal proceeding reported in the Alliance Capital Management Holding L.P. ("Partnership") Form 10-K for the year ended December 31, 1998. In connection with the Partnership's reorganization, on September 29, 1999, a purported class action complaint was filed in the Court of Chancery of the State of Delaware in and for New Castle County against the Partnership, Alliance Capital Management L.P. (formerly Alliance Capital Management L.P. II) ("Alliance Capital"), Alliance Capital Management Corporation and certain other defendants affiliated with the Partnership which sought, among other things, to enjoin the consummation of the reorganization and exchange offer and alleged, among other things, the amended and restated partnership agreement of the Partnership adversely effected the Partnership Unitholders. On October 29, 1999, the parties to the litigation entered into a memorandum of understanding setting forth the parties' agreement in principle to the terms of a proposed settlement of that action. Management of the Partnership does not believe that the resolution of this matter will have a material adverse effect on the Partnership's results of operations or financial condition. Item 2. Changes in Securities None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders During the third quarter of 1999, a Special Meeting of Limited Partners and Unitholders of the Partnership was held on September 22, 1999 at 1345 Avenue of the Americas, New York, New York. The Special Meeting was held to consider a proposed reorganization of the Partnership with separate votes on (i) the transfer by the Partnership of its business to Alliance Capital pursuant to an agreement and plan of reorganization ("Proposal 1"), and (ii) the amendment of the Partnership's partnership agreement to facilitate and implement the reorganization, to maintain the existing rights and benefits of the Partnership's Unitholders following the reorganization and to modify or eliminate provisions that are inoperative or are no longer relevant or that require technical revisions ("Proposal 2"). 19
Proposal 1 and Proposal 2 were approved at the Special Meeting. 42,069,423 affirmative votes were cast in favor of Proposal 1 by "unaffiliated" Unitholders, 4,453,787 votes were cast against Proposal 1 by "unaffiliated" Unitholders and 587,084 Units held by "unaffiliated" Unitholders represented at the Special Meeting abstained from voting in respect of Proposal 1. For purposes of the Special Meeting, "unaffiliated" unitholders included all holders other than (1) directors, officers and employees of the Partnership or its general partner and the following members of their families who share the same household with such persons: children, stepchildren, grandchildren, parents, stepparents, grandparents, spouses, siblings, mothers-in-law, fathers-in-law, sons-in-law, daughters-in-law, brothers-in-law, sisters-in-law, including adoptive relationships; and (2) the Partnership's general partner and entities affiliated with it (including The Equitable Life Assurance Society of the United States). 141,810,806 affirmative votes were cast in favor of Proposal 2, 4,204,472 votes were cast against Proposal 2 and 560,310 Units represented at the Special Meeting abstained from voting in respect of Proposal 2. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 1. Agreement and Plan of Reorganization dated August 20, 1999 among Alliance Capital Management Holding L.P. (formerly Alliance Capital Management L.P.), Alliance Capital Management L.P. (formerly Alliance Capital Management L.P. II), Alliance Capital Management Corporation and The Equitable Life Assurance Society of the United States. 2. Amended and Restated Agreement of Limited Partnership dated October 29, 1999 of Alliance Capital Management Holding L.P. (formerly Alliance Capital Management L.P). 3. Amended and Restated Agreement of Limited Partnership dated October 29, 1999 of Alliance Capital Management L.P. (formerly Alliance Capital Management L.P. II). 4. Exchange Agreement dated April 8, 1999 among Alliance Capital Management Holding L.P. (formerly Alliance Capital Management L.P.), Alliance Capital Management L.P. (formerly Alliance Capital Management L.P. II) and The Equitable Life Assurance Society of the United States (incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-4 (File No. 333-84477) filed on August 3, 1999). 5. Indemnification and Reimbursement Agreement dated April 8, 1999 among Alliance Capital Management Holding L.P. (formerly Alliance Capital Management L.P.), Alliance Capital Management L.P. (formerly Alliance Capital Management L.P. II) and The Equitable Life Assurance Society of the United States (incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-4 (File No. 333-84477) filed on August 3, 1999). 6. Amended and Restated Investment Advisory and Management Agreement dated October 29, 1999 among Alliance Capital Management Holding L.P. (formerly Alliance Capital Management L.P.), Alliance Corporate Finance Group Incorporated and The Equitable Life Assurance Society of the United States. 20
7. Amended and Restated Accounting, Valuation, Reporting and Treasury Services Agreement dated October 29, 1999 between Alliance Capital Management Holding L.P. (formerly Alliance Capital Management L.P.) and The Equitable Life Assurance Society of the United States. 8. Global Assignment and Assumption Agreement dated October 29, 1999 between Alliance Capital Management Holding L.P. (formerly Alliance Capital Management L.P.) and Alliance Capital Management L.P. (formerly Alliance Capital Management L.P. II). 9. Pass-Through Agreement dated October 29, 1999 between Alliance Capital Management Holding L.P. (formerly Alliance Capital Management L.P.) and Alliance Capital Management L.P. (formerly Alliance Capital Management L.P. II). (b) Reports on Form 8-K The Partnership filed a report on Form 8-K dated September 30, 1999 reporting unaudited pro forma condensed financial statements for the six months ended June 30, 1999 and 1998 for the Partnership and Alliance Capital Management L.P. (formerly Alliance Capital Management L.P. II). 21
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 HOLDING L.P. Dated: November 15, 1999 By: Alliance Capital Management Corporation, its General Partner By: /s/ Robert H. Joseph, Jr. ------------------------------------- Robert H. Joseph, Jr. Senior Vice President & Chief Financial Officer 22