ITEM 1. BUSINESS
General The Partnership was formed in 1987 to succeed to the business of ACMC which began providing investment management services in 1971. On April 21, 1988 the business and substantially all of the operating assets of ACMC were conveyed to the Partnership in exchange for a 1% general partnership interest in the Partnership and 30,868,182 Units (adjusted to reflect the Partnership's two for one Unit split effective February 22, 1993). In December 1991 ACMC transferred its 1% general partnership interest in the Partnership to Alliance.
On February 10, 1993 the Partnership declared a two for one Unit split payable to Unitholders of record on February 22, 1993. All Unit and per Unit amounts in this Annual Report on Form 10-K have been adjusted where necessary to reflect the Unit split.
In July 1992 AXA acquired 49% of the issued and outstanding shares of the capital stock of ECI. ECI is a public company with shares traded on the New York Stock Exchange, Inc. ("NYSE"). ECI owns all of the shares of Equitable.
AXA is a member of a group of companies ("AXA Group") that is the second largest insurance group in France and one of the largest insurance groups in Europe. Principally engaged in property and casualty insurance and life insurance in Europe and elsewhere in the world, the AXA Group is also involved in real estate operations and certain other financial services, including mutual fund management, lease financing services and brokerage services. Based on information provided by AXA, as of December 31, 1993, 42.7% of the voting shares (representing 54.8% of the voting power) of AXA were owned by Midi Participations, a French corporation that is a holding company. The voting shares of Midi Participations are in turn owned 60% by Finaxa, a French corporation that is a holding company, and 40% by subsidiaries of Assicurazioni Generali S.p.A., an Italian corporation ("Generali") (one of which, Belgica Insurance Holdings S.A., a Belgian corporation, owned 34.2%). As of December 31, 1993, 62.4% of the voting shares (representing 71.5% of the voting power) of Finaxa were owned by five French mutual insurance companies ("Mutuelles AXA") one of which, AXA Assurance I.A.R.D. Mutuelle, owned 31.6% of the voting shares (representing 45.5% of the voting power), and 27.1% of the voting shares (representing
19.7% of the voting power) of Finaxa were owned by Compagnie Financiere de Paribas, a French financial institution engaged in banking and related activities ("Paribas"). Including the shares owned by Midi Participations, as of December 31, 1993, the Mutuelles AXA directly or indirectly owned 51.7% of the voting shares (representing 64.2% of the voting power) of AXA. In addition, certain subsidiaries of AXA own 0.3% of the shares of AXA which may not be voted. Acting as a group, the Mutuelles AXA control AXA, Midi Participations and Finaxa. The Mutuelles AXA have approximately 1.5 million policyholders.
On July 22, 1993 the business and substantially all of the assets of Equitable Capital Management Corporation ("ECMC") were transferred to the Partnership. The Partnership assumed substantially all of ECMC's liabilities and issued 12,500,000 Units (consisting of 12,400,000 Units and a newly created Class A Limited Partnership Interest convertible initially into 100,000 Units). The Partnership issued 11,800,000 of the Units and the Class A Limited Partnership Interest to ECMC. ECMC may receive additional Units valued at up to $25 million under a formula based on contingent incentive fees received by the Partnership prior to April 1, 1998. The remaining 600,000 Units were issued to certain ECMC employees at a substantial discount from market value. In addition, ACMC purchased 2,380,952 Units for $50 million in cash. ECMC and ACMC are wholly-owned subsidiaries of Equitable. As a result of this transaction Equitable's direct and indirect percentage ownership interest in the Units increased to approximately 63%. The transaction was accounted for in a manner similar to the pooling of interests method. Accordingly, all financial data for all periods presented, except as specifically stated herein, has been restated to include the results of operations of ECMC.
On March 7, 1994 the Partnership acquired the business of Shields Asset Management, Incorporated ("Shields") and its wholly-owned subsidiary, Regent Investor Services Incorporated ("Regent") for a purchase price of $70 million in cash. Shields and Regent are investment managers with client assets under management aggregating approximately $8 billion as of December 31, 1993. Shields' clients consist primarily of collectively bargained multiemployer retirement plan accounts. Regent's clients are primarily smaller retirement plan accounts and "wrap-fee" accounts of individuals maintained with third-party broker-dealers with whom Regent has entered into agreements under which Regent is one of several investment managers who may be selected by the client. In addition the Partnership issued 645,160 new Units to key employees of Shields and Regent in connection with their entering into long term employment agreements.
The Partnership, one of the nation's largest investment advisers, provides diversified investment management services both to institutional clients and, through various investment vehicles, to individual investors.
The Partnership's institutional account management business consists primarily of the active management of equity and fixed income accounts. The Partnership's institutional clients include corporate and public employee pension funds, the general and separate accounts of Equitable and its insurance company subsidiaries, endowment funds, and other domestic and foreign institutions. The Partnership's individual investor services, which developed as a diversification of its institutional investment management business, consist of the management, distribution and servicing of mutual funds and cash management products, including money market funds and deposit accounts.
The following tables provide a summary of assets under management and associated revenues:
ASSETS UNDER MANAGEMENT (in millions)
REVENUES (in thousands)
Institutional Account Management
The Partnership provides investment management services to institutional clients. As of December 31, 1991, 1992, and 1993 institutional accounts (other than investment companies and deposit accounts) represented approximately 72%, 71%, and 68% respectively, of the total assets under management by the Partnership. The fees earned from the management of those accounts represented approximately 44%, 39% and 38% of the Partnership's revenues for 1991, 1992 and 1993, respectively.
INSTITUTIONAL ACCOUNT ASSETS UNDER MANAGEMENT (in millions)
REVENUES FROM INSTITUTIONAL ACCOUNT MANAGEMENT (in thousands)
Investment Management Services
The Partnership's institutional account management business consists primarily of the active management of equity accounts, balanced (equity and fixed income) accounts and fixed income accounts. The Partnership also provides active management for venture capital portfolios, and international (non-U.S.) and global (including U.S.) equity, balanced and fixed income portfolios. The Partnership provides "passive" management services for equity, fixed income and international accounts. As of December 31, 1993 the Partnership's accounts were managed by 81 portfolio managers with an average of 16 years of experience in the industry and 10 years of experience with the Partnership.
EQUITY AND BALANCED ACCOUNTS. The Partnership's equity and balanced accounts contributed approximately 20%, 21% and 20% of the Partnership's total revenues for 1991, 1992 and 1993, respectively. Assets under management relating to active equity and balanced accounts grew from approximately $19.7 billion as of December 31, 1988 to approximately $33.9 billion as of December 31, 1993.
The Partnership has had a distinct and consistent style of equity investing that has remained essentially unchanged since its inception. The Partnership does not emphasize market timing as an investment tool but instead emphasizes long-term trends and objectives, generally remaining fully invested. The Partnership's strategy is to invest in the securities of companies experiencing growing earnings momentum. Consequently, the Partnership's client portfolios tend to include growth stocks. The result of these investment characteristics is that the Partnership's client portfolios tend to have, as compared to the average of companies comprising the Standard & Poor's Index of 500 Stocks ("S&P 500"), a greater market price volatility, a lower average yield, and a higher average price-earnings ratio.
The Partnership's principal method of securities evaluation is through fundamental analysis undertaken by its internal staff of full-time research analysts, supplemented by research undertaken by the Partnership's portfolio managers. The Partnership holds frequent investment strategy meetings in which senior management, portfolio managers and analysts establish the Partnership's firmwide investment strategy, including asset classes and mix, investment themes, and industry concentrations. The Partnership's portfolio managers then construct and maintain portfolios that adhere to each client's guidelines and conform to the Partnership's current investment strategy.
The Partnership's balanced accounts consist of an equity component and a fixed income component. Typically, from 50% to 75% of a balanced account is managed in the same manner as a separate equity account, while the remaining fixed income component is oriented toward capital preservation and income generation.
FIXED INCOME ACCOUNTS. The Partnership's fixed income accounts contributed approximately 20%, 15% and 14% of the Partnership's total revenues for 1991, 1992 and 1993, respectively. Assets under management relating to active fixed income accounts decreased from approximately $30.9 billion as of December 31, 1988 to approximately $30.8 billion as of December 31, 1993.
The Partnership's fixed income management services include conventional actively managed bond portfolios in which portfolio maturity structures, market sector concentrations and other characteristics are actively shifted in anticipation of market changes. The fixed income services also include managing portfolios investing in foreign government securities and other foreign debt securities of high quality and short duration, utilizing currency cross hedging to manage currency risk. Sector concentrations and other portfolio characteristics are heavily committed to areas that the Partnership's portfolio managers believe have the best investment values. The Partnership also manages portfolios that are confined to investment in specialized areas of the fixed income markets, such as mortgage-backed securities and high yield bonds.
Alliance Corporate Finance Group Incorporated ("ACFG"), a wholly-owned subsidiary of the Partnership, manages investments in private mezzanine financings and private investment limited partnerships. Private mezzanine financings are investments in the subordinated debt and/or preferred stock portion of leveraged transactions (such as leveraged buy-outs, leveraged acquisitions and leveraged recapitalizations). Such investments may be coupled with a contingent interest component or investment in an equity participation, which provide the potential for capital appreciation.
ACFG uses a network of investment banks, commercial banks, other financial institutions and issuers to generate investment opportunities in the private placement market. This network permits ACFG to seek to manage risk through high selectivity and diversification strategies. ACFG also seeks to mitigate risk through an ongoing program of monitoring the performance of the companies in its portfolios. In addition, ACFG maintains a separate Investment Recovery Group responsible for maximizing the recovery of clients' investments in troubled companies.
ACFG manages two private investment funds designed for institutional investors, with an aggregate of approximately $986 million under management as of December 31, 1993. As of that date, Equitable and its insurance company subsidiaries had investments of approximately $329 million in these funds.
The Partnership manages two collateralized bond obligation funds whose pool of collateral debt securities consist primarily of privately-placed, fixed rate corporate debt securities acquired from Equitable and its affiliates. As of December 31, 1993 these funds had approximately $768 million under management. As of that date, Equitable and its insurance company subsidiaries had investments of approximately $374 million in these funds.
ACFG also manages two limited partnerships regulated as business development companies under the Investment Company Act of 1940 ("Investment Company Act") which invest primarily in private mezzanine financings. As of December 31, 1993 these funds had net assets of approximately $377 million.
OTHER SERVICES. The Partnership's strategy in passive portfolio management is to provide customized portfolios to meet specialized client needs, such as a portfolio fitted to an index of small-capitalization stocks. In addition, the Partnership offers domestic and international indexation strategies, such as portfolios designed to match the performance characteristics of the S&P 500 and the Morgan Stanley Capital International Indices. The Partnership also offers a variety of structured fixed income portfolio applications, including immuniza- tion (designed to produce a compound rate of return over a specified time, irrespective of interest rate movements), dedication (designed to produce specific cash flows at specific times to fund known liabilities) and indexation (designed to replicate the return of a specified market index or benchmark). A subsidiary of the Partnership is the manager of four passive U.K. unit trusts which invest in small capitalization common stocks on a global basis. As of December 31, 1993, the Partnership managed approximately $13.0 billion in passive portfolios.
Subsidiaries of the Partnership maintain offices in London, England and Tokyo, Japan which provide international and global investment management and advisory services to institutional and other clients, and in Melbourne, Australia and Vancouver, Canada, Toronto, Canada and Singapore which market investment management services.
Clients
The approximately 940 institutional accounts (other than investment companies) for which the Partnership acts as investment manager include corporate employee benefit plans, public employee retirement systems, the general and separate accounts of Equitable and its insurance company subsidiaries, endowment funds, foundations, foreign governments and financial and other institutions. Generally, the minimum size for a new separately managed account is $10 million.
The general and separate accounts of Equitable and its insurance company subsidiaries are the Partnership's largest institutional clients. As of December 31, 1993 these accounts, excluding investments made by these accounts in The Hudson River Trust (See "Individual Investor Services - The Hudson River Trust"), represented approximately 22.1% of total assets under management by the Partnership and approximately 12.4% of the Partnership's annual revenues for 1993.
Prior to the acquisition of the business and substantially all of the assets of ECMC during 1993, corporate employee benefit plans ("corporate plans") constituted the largest segment of the Partnership's institutional clients. As of December 31, 1993, corporate plan accounts represented approximately 17% of total assets under management by the Partnership. Assets under management for other tax-exempt accounts, including public employee benefit funds organized by government agencies and municipalities, endowments, foundations and multi-em- ployer employee benefit plans, represented approximately 28% of total assets under management as of December 31, 1993.
The following table lists the Partnership's ten largest institutional clients, ranked in order of size of total assets under management as of December 31, 1993. Since the Partnership's fee schedules vary based on the type of account, the table does not reflect the ten largest revenue generating clients.
Client or Sponsoring Employer Type of Account - ----------------------------- ---------------
Equitable and its insurance company subsidiaries . . . . . . . . . . . . Equity, Fixed Income, Passive A Foreign Government Central Bank. . . . . . . Equity, Global Equity, Fixed Income, Global Fixed Income North Carolina Retirement System . . . . . . . Passive Equity, Equity, Global Equity BellSouth Corporation. . . . . . . . . . . . . Passive Equity State Board of Administration of Florida . . . Equity, Fixed Income Ford Motor Company . . . . . . . . . . . . . . Equity, Venture Capital Boeing Company . . . . . . . . . . . . . . . . Equity, Balanced Ontario Municipal Employees Retirement System . . . . . . . . . . . . . Passive Equity National Westminster Bancorp, Inc. . . . . . . Equity, Fixed Income Wyoming Retirement System. . . . . . . . . . . Balanced
As of December 31, 1993 these institutional clients accounted for approximately 43.0% of the Partnership's total assets under management. No single institutional client other than Equitable and its insurance company subsidiaries accounted for more than approximately 1.1% of the Partnership's total revenues for the year ended December 31, 1993.
Since its inception, the Partnership has experienced periods when it gained significant numbers of new accounts or amounts of assets under management and periods when it lost significant accounts or assets under management. These fluctuations result from, among other things, the relative attractiveness of the Partnership's investment style or level of performance under prevailing market conditions, changes in the investment patterns of clients that dictate a shift in assets under management and other circumstances such as changes in the management or control of a client.
Investment Management Agreements and Fees
The Partnership's institutional accounts are managed pursuant to a written investment management agreement between the client and the Partnership, which usually is terminable at any time or upon relatively short notice by either party. In general, the Partnership's contracts may not be assigned without the consent of the client.
In providing investment management services to institutional clients, the Partnership is principally compensated on the basis of fees calculated as a percentage of assets under management. Fees are generally billed quarterly and are calculated on the net asset value of an account at the beginning or end of a quarter or on the average of such values during the quarter. As a result, fluctuations in the amount or value of assets under management are reflected in revenues from management fees within two calendar quarters.
Management fees paid on equity and balanced accounts are generally charged in accordance with a fee schedule that ranges from 0.75% (for the first $10 million in assets) to 0.25% (for assets over $60 million) per annum of assets under management. Fees for the management of fixed income portfolios generally are charged in accordance with lower fee schedules, while fees for passive equity portfolios typically are even lower. With respect to approximately 6.1% of assets under management, including certain of the portfolios of the clients listed in the table listing the Partnership's ten largest institutional clients, the Partnership charges performance-based fees, which consist of a relatively low base fee plus an additional fee based on a percentage of assets if invest- ment performance for the account exceeds certain benchmarks. No assurance can be given that such fee arrangements will not become more common in the investment management industry. Utilization of such fee arrangements by the Partnership on a broader basis could create greater fluctuations in the Partnership's revenues.
ACFG's fees for corporate finance activities generally involve the payment of a base management fee ranging from 0.10% to 1.00% of assets under management per annum. In some cases ACFG receives incentive fees generally equivalent
to 20% of any gains in excess of a specified hurdle rate.
In connection with the investment advisory services provided to the general and separate accounts of Equitable and its insurance company subsidiaries the Partnership provides ancillary accounting, valuation, reporting, treasury and other services for regulatory purposes.
Marketing
The Partnership's institutional products are marketed by marketing specialists assisted by portfolio managers. These marketing specialists solicit business on a full-time basis for the entire range of the Partnership's institutional account management services. Regional office personnel, including investment managers, participate directly in attracting business for their particular office and products. In addition, marketing specialists are dedicated to public retirement systems.
Individual Investor Services
The Partnership (i) manages and sponsors a broad range of open-end and closed-end mutual funds other than The Hudson River Trust ("Alliance Mutual Funds"), (ii) manages The Hudson River Trust which is the funding vehicle for the variable annuity insurance and variable life insurance products offered by Equitable and its insurance company subsidiaries, and (iii) provides cash management services (money market funds and federally insured deposit accounts) that are marketed to individual investors through broker-dealers and other financial intermediaries. The assets comprising all Alliance Mutual Funds, The Hudson River Trust and deposit accounts on December 31, 1993 amounted to approximately $37.4 billion held in more than 1,500,000 investor accounts. The assets of the Alliance Mutual Funds and The Hudson River Trust are managed by the same investment professionals who manage the Partnership's institutional client accounts.
REVENUES FROM INDIVIDUAL INVESTOR SERVICES (in thousands)
Alliance Mutual Funds
The Partnership has been managing mutual funds since 1971. Since then, the Partnership has sponsored open-end load mutual funds, closed-end mutual funds and offshore mutual funds. On December 31, 1993 the assets in the Alliance Mutual Funds totalled approximately $22.0 billion. Additional funds are under development.
The Hudson River Trust
The Hudson River Trust is the funding vehicle for the variable annuity insurance and variable life insurance products offered by Equitable and its insurance company subsidiaries. On December 31, 1993 the assets of the various portfolios of The Hudson River Trust were as follows:
DISTRIBUTION. The Alliance Mutual Funds are distributed to individual investors through national and regional broker-dealers, insurance sales representatives, banks and other financial intermediaries. Alliance Fund Distributors, Inc. ("AFD"), a registered broker-dealer and a wholly-owned subsidiary of the Partnership, serves as the principal underwriter and distributor of the Alliance Mutual Funds registered under the Investment Company Act of 1940 as "open-end" investment companies ("U.S. Funds") and serves as the placing or distribution agent of the Alliance Mutual Funds not registered under the Investment Company Act ("Offshore Funds"). 63 sales representatives devote their time exclusively to promoting the sale of Alliance Mutual Fund shares by financial intermediaries.
Many of the financial intermediaries that sell shares of Alliance Mutual Funds also offer shares of funds not managed by the Partnership and, in some cases, offer shares managed by their own affiliates.
During 1993 the Partnership expanded its mutual fund distribution system (the "System") to include a third distribution option. The System permits open- end 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 and transfer agent costs 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"). If a shareholder purchases Class A Shares, AFD compensates the financial intermediary distributing the Fund from a portion of the front-end sales charge paid by the shareholder at the time of each sale. If a shareholder purchases Class B Shares, AFD does not collect a front-end sales charge even though AFD is obligated to compensate the financial intermediary at the time of each sale. Payments made to financial intermediaries during 1993 in connection with the System, net of CDSC received, totalled approximately $75.3 million. Management of the Partnership believes AFD will recover the payments made to financial intermediaries from the higher distribution fees and CDSC it receives over periods not exceeding 5 1/2 years. If a shareholder purchases Class C Shares, AFD does not collect a front-end sales charge or CDSC and does not compensate the financial intermediary at the time of sales but the entire amount of the distribution fees attributable to Class C Shares is paid to the financial intermediary. The rules of the National Association of Securities Dealers, Inc. effectively limit the aggregate of all front-end, deferred and asset-based sales charges paid to AFD with respect to any class of its shares by each open-end Alliance Mutual fund to 6.25% of cumulative gross sales of shares of that class, plus interest at the prime rate plus 1% per annum.
The open-end U.S. Funds and Offshore Funds have entered into agreements with AFD, under which AFD is paid a distribution services fee. The Partnership uses borrowings and its own resources to finance distribution of open-end Alliance Mutual Fund shares.
The selling and distribution agreements between AFD and the financial intermediaries that distribute Alliance Mutual Funds are terminable by either party upon notice (generally of not more than sixty days) and do not obligate the financial intermediary to sell any specific amount of fund shares. A small amount of mutual fund sales is made directly by AFD, in which case AFD retains the entire sales charge paid.
During 1993 the ten largest dealers with which AFD had selling agreements were responsible for 72% of the total sales of Alliance Mutual Funds. Equico Securities, Inc. ("Equico"), a wholly-owned subsidiary of Equitable that utilizes members of Equitable's insurance agency sales force as its registered representatives, has entered into a selected dealer agreement with AFD and since 1986 has been responsible for a significant portion of total open-end mutual fund sales (8% in 1993). Equico is under no obligation to sell a specific amount of fund shares and also sells shares of mutual funds sponsored by organizations unaffiliated with Equitable.
Subsidiaries of Merrill Lynch & Co., Inc. (collectively "Merrill Lynch") were responsible for approximately 26%, 21% and 35% of Alliance Mutual Fund sales in 1991, 1992 and 1993, respectively. Merrill Lynch is not under any obligation to sell a specific amount of Alliance Mutual Fund shares and also sells shares of mutual funds which it sponsors and which are sponsored by unaffiliated organizations.
No other dealer or agent has in any year since 1988 accounted for more than 10% of the sales of open-end Alliance Mutual Funds.
Based on market data reported by the Investment Company Institute (December 1993), the Partnership's market share in the U.S. mutual fund industry is 1.32% of total industry assets and the Partnership accounted for 2.69% of total open-end and closed-end fund sales force-derived industry sales in the U.S. during 1993. While the performance of the Alliance Mutual Funds is a factor in the sale of their shares, there are other factors contributing to success in the mutual fund management business that are not present in the institutional account management business. These factors include the level and quality of shareholder services (see "Shareholder and Administration Services" below) and the amounts and types of distribution assistance and administrative services payments. The Partnership believes that its compensation programs with dealers and distributors are competitive with others in the industry.
Under current interpretations of the Glass-Steagall Act and other laws and regulations governing depository institutions, banks and certain of their affiliates generally are permitted to act as agent for their customers in connection with the purchase of mutual fund shares and to receive as compensation a portion of the sales charges paid with respect to such purchases. During 1993, banks and their affiliates accounted for approximately 19.7% of the sales of shares of open-end Alliance Mutual Funds.
INVESTMENT MANAGEMENT AGREEMENTS AND FEES. Management fees from the Alliance Mutual Funds and The Hudson River Trust vary between .35% and 1.20% per annum of average net assets. As certain of the U.S. Funds have grown, fee schedules have been revised to provide lower incremental fees above certain levels. Fees paid by the U.S. Funds and The Hudson River Trust are fixed annually by negotiation between the Partnership and the board of directors or trustees of each U.S. Fund and The Hudson River Trust, including a majority of the disinterested directors or trustees. Changes in the fees must be approved by the shareholders of each U.S. Fund and The Hudson River Trust. In general, the investment management agreements of the U.S. Funds and The Hudson River Trust provide for termination at any time upon 60 days notice.
Investment management fees paid by Alliance Short-Term Multi-Market Trust represented approximately 9%, 10% and 5% of the Partnership's aggregate investment advisory fees in 1991, 1992 and 1993, respectively.
Under each investment management agreement with a U.S. Fund, the Partnership provides the U.S. Fund with investment management services, office space and order placement facilities and pays all compensation of directors or trustees and officers of the U.S. Fund who are affiliated persons of the Partnership. Each U.S. Fund pays all of its other expenses. If the expenses of a U.S. Fund exceed an expense limit established under the securities laws of any state in which shares of that U.S. Fund are qualified for sale or as prescribed in the U.S. Fund's investment management agreement, the Partnership absorbs such excess through a reduction in the advisory fee. Currently, the Partnership believes that California is the only state to impose such a limit. The expense ratios for the U.S. Funds during their most recent fiscal year ranged from 0.97% to 2.69%. In connection with newly organized U.S. Funds, the Partnership may also agree to reduce its fee or bear certain expenses to limit a fund's expenses during an initial period of operations. The Partnership does not expect, however, that state expense or voluntary limits, at current fee and expense levels, will have a significant effect on the results of its operations.
Cash Management Services
The Partnership provides individual cash management services through a product line comprising twelve money market fund portfolios and two types of brokered money market deposit accounts. Assets in these products as of December 31, 1993 totalled approximately $8.1 billion.
The Partnership also offers a managed assets program, which provides customers of participating broker-dealers with a Visa Card, access to automated teller machines and check writing privileges. The program is linked to the customer's chosen Alliance money market fund. The program serves to enhance relationships with broker-dealers and to attract and retain investments in the Alliance money market funds, as well as to generate fee income.
Under its investment management agreement with each money market fund, the Partnership is paid an investment management fee equal to 0.50% per annum of the fund's average net assets except for ACM Institutional Reserves which pays a fee between 0.20% and 0.45% of its average net assets. In the case of Alliance Capital Reserves, the fee is payable at lesser rates with respect to average net assets in excess of $1.25 billion. For its distribution and account maintenance services
rendered in connection with the sale of money market deposit accounts, the Partnership receives fees from the participating banks that are based on outstanding account balances. Because the money market deposit account programs involve no investment management functions to be performed by the Partnership, the Partnership's costs of maintaining the account programs are less, on a relative basis, than its costs of managing the funds.
More than 95% of the assets invested in the Partnership's cash management programs are attributable to regional broker-dealers and other financial intermediaries, with the remainder coming directly from the public. Through active sales efforts, the Partnership has been able to increase the number of financial intermediaries that feature the Alliance line. On December 31, 1993 more than 400 financial intermediaries offered Alliance cash management services. The Partnership's money market fund market share (not including deposit products), as computed based on market data reported by the Investment Company Institute (November 1993), has increased from .82% of total money market fund industry assets at the end of 1987 to 1.33% at November 30, 1993.
The Partnership makes payments to financial intermediaries for distribution assistance and shareholder servicing and administration. The Alliance money market funds pay fees to the Partnership at annual rates of up to 0.25% of average daily net assets pursuant to "Rule 12b-1" distribution plans. Such payments are supplemented by the Partnership in making payments to intermediaries under the distribution assistance and shareholder servicing and administration program. During 1993 such supplemental payments totalled $22.1 million ($19.6 million in 1992). Nine employees of the Partnership devote their time exclusively to marketing the Partnership's cash management services.
A principal risk to the Partnership's cash management services business is the acquisition of its participating intermediaries by companies that are competitors or that plan to enter the cash management services business. As of December 31, 1993 the five largest participating intermediaries were responsible for assets aggregating approximately $4.2 billion, or 51% of the Alliance cash management services total. Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ Securities Corporation"), a subsidiary of Equitable, was one of these intermediaries.
Many of the financial intermediaries whose customers utilize the Partnership's cash management services are broker-dealers whose customer accounts are carried, and whose securities transactions are cleared and settled, by the Pershing Division ("Pershing") of DLJ Securities Corporation. Pursuant to an agreement between Pershing and the Partnership, Pershing recommends to certain of its correspondent firms the use of Alliance money market funds and other cash management products. In return, Pershing is allocated a portion of the revenues derived by the Partnership from sales through such Pershing correspondents. During 1993 these payments to Pershing amounted to approxi- mately $2.9 million. As of December 31, 1993 DLJ Securities Corporation and these Pershing correspondents were responsible for approximately 38% of Alliance's total cash management assets. Pershing may terminate its agreement with the Partnership on 180 days' notice. If the agreement were terminated, Pershing would be under no obligation to recommend or in any way assist in the sale of Alliance cash management products and would be free to recommend or assist in the sale of competitive products.
The Alliance money market funds are investment companies registered under the Investment Company Act and are managed under the supervision of boards of directors or trustees, which include disinterested directors or trustees who must approve investment management agreements and certain other matters. The investment management agreements between the money market funds and the Partnership provide for an expense limitation of 1% per annum or less of average daily net assets. See "Alliance Mutual Funds."
Shareholder and Administration Services
Alliance Fund Services, Inc. ("AFS"), a wholly-owned subsidiary of the Partnership, provides registrar, dividend disbursing and transfer-agency related services for each U.S. Fund and provides servicing for each U.S. Fund's shareholder accounts. As of December 31, 1993 AFS employed approximately 257 people. AFS operates out of offices in Secaucus, New Jersey. Under each servicing agreement AFS receives a monthly fee. Each servicing agreement must be approved annually by the relevant U.S. Fund's board of directors or trustees, including a majority of the disinterested directors or trustees, and may be terminated by either party without penalty upon 60 days' notice.
Alliance International Fund Services S.A. ("AIFS"), a wholly-owned subsidiary of the Partnership, is the registrar and transfer agent of substantially all of the Offshore Funds. As of December 31, 1993 AIFS employed approximately 4 people. AIFS operates out of its offices in Luxembourg. AIFS receives a monthly fee for its registrar and transfer agency
services. Each agreement between AIFS and an Offshore Fund may be terminated by either party upon 60 days' notice.
The Partnership expects to continue to devote substantial resources to shareholder servicing because of its importance in competing for assets invested in mutual funds and cash management services.
In addition, under most U.S. Fund investment management agreements, the U.S. Funds are authorized to utilize Partnership personnel to perform legal, clerical and accounting services not required to be provided by the Partnership. The payments therefore must be specifically approved in advance by the U.S. Fund's board of directors or trustees. Currently, the Partnership and AFS are accruing revenues for providing clerical and accounting services to such U.S. Funds at the rate of approximately $7.0 million per year.
Competition
The financial services industry is highly competitive and new entrants are continually attracted to it. No one or small number of competitors is dominant in the industry. The Partnership is subject to substantial competition in all aspects of its business. Pension fund, institutional and corporate assets are managed by investment management firms, broker-dealers, banks and insurance companies. Many of these financial institutions have substantially greater resources than the Partnership. The Partnership competes with other providers of institutional investment products and services primarily on the basis of the range of investment products offered, the investment performance of such products and the services provided to clients. Based on an annual survey conducted by PENSIONS & INVESTMENTS, as of January 1, 1993, prior to the acquisition of the business and assets of ECMC, the Partnership was ranked 10th out of 851 managers based on tax-exempt assets under management, 6th out of the 25 largest managers of active U.S. assets invested abroad, 5th out of the 25 largest managers of international index assets, 6th out of the 25 largest managers of domestic equity index funds and 10th out of the 25 largest managers of mortgage-backed securities.
Many of the firms competing with the Partnership for institutional clients also offer mutual fund shares and cash management services to individual investors. Competitiveness in this area is chiefly a function of the range of mutual funds and cash management services offered, investment performance, the quality in servicing customer accounts and the capacity to provide financial incentives to intermediaries through distribution assistance and administrative services payments funded by "Rule 12b-1" distribution plans and the manager's own resources.
Custody and Brokerage
Neither the Partnership nor its subsidiaries maintains custody of client funds or securities, which is maintained by client-designated banks, trust companies, brokerage firms or other custodians. Custody of the assets of Alliance Mutual Funds, The Hudson River Trust and money market funds is main- tained by custodian banks and central securities depositories.
The Partnership generally has the discretion to select the brokers with whom orders for the purchase or sale of securities for client accounts are placed for execution. These brokers include those that have correspondent clearing arrangements with Pershing. Broker-dealers affiliated with Equitable are used to effect transactions for client accounts only if the use of the broker-dealers has been specifically authorized or directed by the client.
Regulation
The Partnership, ACFG and Alliance are investment advisers registered under the Investment Advisers Act of 1940. Each U.S. Fund is registered with the Securities and Exchange Commission ("SEC") under the Investment Company Act and the shares of most are qualified for sale in all states in the United States and the District of Columbia, except for Funds offered only to residents of a particular state. AFS is registered with the SEC as a transfer agent and AFD is registered with the SEC as a broker-dealer. AFD is subject to minimum net capital requirements ($4.6 million at December 31, 1993) imposed by the SEC on registered broker-dealers and had aggregate regulatory net capital of $5.9 million at December 31, 1993.
The relationships of Equitable and its insurance company subsidiaries with the Partnership are subject to applicable provisions of the New York Insurance Law and regulations. Certain of the investment advisory agreements and ancillary administrative service agreements between Equitable and the insurance company subsidiaries and the Partnership are subject to disapproval by the New York Superintendent of Insurance within a prescribed notice period. Under the New York Insurance Law and regulations, the terms of these agreements are to be fair and equitable, charges or fees for services performed are to be reasonable, and certain other standards must be met. Fees must be determined either with reference to fees charged to other clients for similar services or, in certain cases, which include the ancillary service agreements, based on cost reimbursement.
The Partnership's assets under management and its revenues derived from the general accounts of Equitable and its insurance company subsidiaries are directly affected by the investment policies for the general accounts. Among the numerous factors influencing general account investment policies are regulatory factors, such as (i) laws and regulations that require diversification of the investment portfolios and limit the amount of investments in certain investment categories such as below investment grade fixed maturities, equity real estate and equity interests, (ii) statutory investment valuation reserves, and (iii) risk-based capital guidelines for life insurance companies approved by the National Association of Insurance Commissioners for implementation beginning with the 1993 statutory financial statements. Equitable is generally following a strategy of directing new general account investments into investment grade securities and reducing its portfolio of below investment grade fixed maturities and currently has a policy of not investing substantial new funds in equity interests. This has the effect of shifting general account assets managed by the Partnership into categories having lower management fees.
All aspects of the Partnership's business are subject to various federal and state laws and regulations and to the laws in the foreign countries in which the Partnership's subsidiaries conduct business. These laws and regulations are primarily intended to benefit clients and fund shareholders and generally grant supervisory agencies broad administrative powers, including the power to limit or restrict the carrying on of business for failure to comply with such laws and regulations. In such event, the possible sanctions which may be imposed include the suspension of individual employees, limitations on engaging in business for specific periods, the revocation of the registration as an investment adviser, censures and fines.
Employees
As of December 31, 1993 the Partnership and its subsidiaries employed 1,284 full-time employees, including 147 investment professionals, of whom 81 are portfolio managers, 58 are securities analysts, and 8 are order placement specialists. The average period of employment of these professionals with the Partnership is approximately 8 years and their average investment experience is approximately 14 years. The Partnership considers its employee relations to be good.
Service Marks
The Partnership has registered a number of service marks with the U.S. Patent and Trademark Office, including an "A" design logo and the combination of such logo and the words "Alliance" and "Alliance Capital". Each of these service marks was registered in 1986 and has a duration of 20 years from the date of registration (which is automatically renewable) provided the mark continues to be used during that time.
ITEM 2.
ITEM 2. PROPERTIES
The Partnership's principal executive offices at 1345 Avenue of the Americas, New York, New York are occupied pursuant to a lease which extends until 2009. The Partnership currently occupies approximately 186,000 square feet at this location and will lease approximately 15,500 square feet of additional space at this location during 1994. The Partnership also occupies approximately 51,200 square feet at 1285 Avenue of the Americas, New York, New York and approximately 80,000 square feet at 135 West 50th Street, New York, New York under leases expiring in 2001 and 1998, respectively. The Partnership and its subsidiaries, AFD and AFS, occupy approximately 67,000 square feet of space in Secaucus, New Jersey pursuant to a lease which extends until 2003. The Partnership leases substantially all of the furniture and office equipment at the New York and New Jersey offices.
The Partnership also leases space in California, Minnesota and Ohio, and its subsidiaries lease space in London, England, Tokyo, Japan, Melbourne, Australia, Vancouver, Canada, Toronto, Canada, Luxembourg and Singapore.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
On July 22, 1993 substantially all of the assets of 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 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 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. The Partnership believes that the lawsuit is without merit and will vigorously defend against it.
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 has filed an appeal.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter of 1993.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market for the Units
The Units are traded on the New York Stock Exchange ("NYSE"). The high and low sales prices on the NYSE during each quarter of the Partnership's two most recent fiscal years were as follows:
On February 10, 1993 the Partnership declared a two for one Unit split payable to Unitholders of record on February 22, 1993. The high and low sales prices above have been adjusted where necessary to reflect the Unit split.
On March 14, 1994 the closing price of the Units on the NYSE was $25.125. As of March 14, 1994 there were approximately 1,461 Unitholders of record.
Cash Distributions
The Partnership distributes on a quarterly basis all of its Available Cash Flow (as defined in the Partnership Agreement). During its two most recent fiscal years the Partnership made the following distributions of Available Cash Flow:
On February 10, 1993 the Partnership declared a two for one Unit split payable to Unitholders of record on February 22, 1993. The cash distribution per Unit amounts above have been adjusted where necessary to reflect the Unit split.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The Selected Financial Data which appears on page 43 of the Alliance Capital Management L.P. 1993 Annual Report to Unitholders is incorporated by reference in this Annual Report on Form 10-K.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of Operations which appears on pages 44 through 52 of the Alliance Capital Management L.P. 1993 Annual Report to Unitholders is incorporated by reference in this Annual Report on Form 10-K.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of Alliance Capital Management L.P. and subsidiaries and the report thereon by KPMG Peat Marwick which appear on pages 53 through 69 of the Alliance Capital Management L.P. 1993 Annual Report to Unitholders are incorporated by reference in this Annual Report on Form 10-K. The financial statement schedule required by Regulation S-X is filed under Item 14.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
General Partner
The Partnership's activities are managed and controlled by Alliance as General Partner and Unitholders do not have any rights to manage or control the Partnership. The General Partner has agreed that it will conduct no active business other than managing the Partnership, although it may make certain investments for its own account.
The General Partner does not receive any compensation from the Partnership for services rendered to the Partnership as General Partner. The General Partner holds a 1% general partnership interest in the Partnership. As of March 14, 1994 ACMC and ECMC, affiliates of the General Partner, held 45,371,500 Units (including 100,000 Units issuable upon conversion of the Class A Limited Partnership Interest).
The General Partner is reimbursed by the Partnership for all expenses incurred by it in carrying out its activities as General Partner, including compensation paid by the General Partner to its directors and officers (to the extent such persons are not compensated directly as employees of the Partnership) and the cost of directors and officers liability insurance obtained by the General Partner. The General Partner was not reimbursed for any such expenses in 1993 except for directors' fees.
Directors and Executive Officers of the General Partner
The directors and executive officers of the General Partner are as follows:
Name Age Position ---- --- --------
Dave H. Williams 61 Chairman of the Board, Chief Executive Officer and Director James M. Benson 47 Director Bruce W. Calvert 47 Director, Vice Chairman and Chief Investment Officer John D. Carifa 49 Director, President, Chief Operating Officer and Chief Financial Officer Henri de Castries 39 Director Christophe Dupont-Madinier 42 Director Alfred Harrison 56 Director and Vice Chairman Jean-Pierre Hellebuyck 46 Director Benjamin D. Holloway 69 Director Henri Hottinguer 59 Director Richard H. Jenrette 64 Director Joseph J. Melone 63 Director Brian S. O'Neil 41 Director Frank Savage 55 Director Peter G. Smith 52 Director Madelon DeVoe Talley 62 Director Reba W. Williams 57 Director David R. Brewer, Jr. 48 Senior Vice President and General Counsel Robert H. Joseph, Jr. 46 Senior Vice President-Finance and Chief Accounting Officer
Mr. Williams joined Alliance in 1977 and has been the Chairman of the Board and Chief Executive Officer since that time. He was elected a director of Equitable on March 21, 1991 and was elected to the ECI Board of Directors in July of 1992. ECI is a parent of the Partnership. Mr. Williams is the husband of Reba W. Williams.
Mr. Benson was elected a Director of Alliance in October 1993. He has been Senior Executive Vice President of ECI and President and Chief Operating Officer of Equitable since March 1994. He was a Senior Vice President of Equitable from March 1993 until March 1994. From January 1984 to March of 1993 he was President of Management Compensation Group. Mr. Benson is also a Director of Equitable, The Association for Advanced Underwriting, Health Plans, Inc., the California Special Olympics, The Joffrey Ballet and The African Wildlife Foundation. Equitable is a parent of the Partnership.
Mr. Calvert joined Alliance in 1973 as an equity portfolio manager and was elected Vice Chairman and Chief Investment Officer on May 3, 1993. From 1986 to 1993 he was an Executive Vice President and from 1981 to 1986 he was a Senior Vice President. He was elected a director of Alliance in 1992.
Mr. Carifa joined Alliance in 1971 and was elected President and Chief Operating Officer on May 3, 1993. He has been the Chief Financial Officer since 1973. He was an Executive Vice President from 1986 to 1993 and he was a Senior Vice President from 1980 to 1986. He was elected a director of Alliance in 1992.
Mr. de Castries was elected a Director of Alliance in October 1993. He has been Executive Vice President of AXA since 1993, previously serving as General Secretary of AXA from 1991 to 1993 and Central Director of Finances from 1989 to 1991. Mr. de Castries is Chairman of Compagnie Financiere de Paris, AXA Banque, Banque d'Orsay, Cecico Financement and Maeschaert Rouusselle. He also is a Director of Ateliers de Construction du Nord de la France, Cecico Location, Orsay Arbitrage, Financiere 78, France Telecom, La Paternelle Monegasque (Monaco), Equitable, Donaldson Lufkin & Jenrette, Inc. ("DLJ") and Equitable Real Estate Investment Management, Inc. Additionally, Mr. de Castries serves as a Representative of Compagnie Financiere de Paris on the Boards of Banque Eurofin and AXA Credit; AXA on the Boards of Investissement Finance et Developpement - I.F.D. and AXA Asset Management; and AXA Assurances Iard on the Board of Colisee Development. AXA and Equitable are parents of the Partnership.
Mr. DuPont-Madinier was elected a Director of Alliance in October 1992. He has been the Manager of AXA, International Division, since 1988. Mr. Dupont- Madinier is also director of Anglo Canada General Insurance Company, AXA Insurance Canada, AXA Assurances Canada, AXA Equity & Law UK, DLJ, Equitable Real Estate Investment Management and the chairman and director of AXA Insurance U.K. AXA is a parent of the Partnership.
Mr. Harrison joined Alliance in 1978 and was elected Vice Chairman on May 3, 1993. Mr. Harrison is in charge of the Partnership's Minneapolis office and is a senior portfolio manager. He was an Executive Vice President from 1986 to 1993 and a Senior Vice President from 1978 to 1986. He was a director from 1978 to 1987 and from February 23, 1988 until July 27, 1988. He was elected a director of Alliance in 1992.
Mr. Hellebuyck was elected a director of Alliance in October 1992. He has been the Chief Investment Officer of AXA since 1986. Mr. Hellebuyck is also a director of AXA Reassurance France, AXA Reinsurance UK Plc, AXA Reinsurance Company, Equity & Law Plc, Equity & Law Investment Managers Ltd., Equity & Law Fondsmanagement GmbH, Europhenix Management Company and Societe Des Bourses Francaises. AXA is a parent of the Partnership.
Mr. Holloway was elected a director of Alliance in November 1987. He is a consultant to Tishman/Speyer, Edward J. Debartolo and The Continental Companies. From September 1988 until his retirement in March 1990, Mr. Holloway was a Vice Chairman of Equitable. He served as an Executive Vice President of Equitable from 1979 until 1988. Prior to his retirement he served as a director and officer of various Equitable subsidiaries and Mr. Holloway was also a director of DLJ until March 1990. Mr. Holloway is a director of Rockefeller Center Properties, Inc, Chairman of Duke University Management Corporation, the Cathedral of St. John the Divine Building and Conservation Fund and Touro National Heritage Trust and a Trustee of the Cathedral of St. John the Divine, Duke University and the American Academy in Rome (Emeritus).
Mr. Hottinguer was elected a director of Alliance in October 1992. He has been a partner of Hottinguer & Company since 1968. Mr. Hottinguer is also a President/General Director of Banque Hottinguer and Societe Financiere Pour Le Financement De Bureaux Et D'usines - Sofibus, a Vice President, General Director and Administrator of Financiere Hottinguer, a Vice President/Administrator of AXA International, an Administrator of Investissement Hottinguer S.A., AXA, AXA Assurances IARD, UNI Europe Assurances, ALPHA Assurances VIE and FINAXA, and the Controller of Didot Bottin, Caisee d'Escompte Du Midi and Financiere Provence de Participations - F.P.P. He serves as a General Director of Intercom and Sofides, he is a Permanent Representative of La Banque Hottinguer aupres de I.F.D., La Banque Hottinguer aupres de AXIVA, AXA aupres d'AXA Millesimes and Cie Financiere SGTE au sein de la Societe Schneider S.A., is the Associate Gerant of Hottinguer & Cie, and is a Vice President of Gaspee. In addition, he is the Chairman of the Board of Hottinguer Brothers and Co., Inc., a Director of the Helvetia Fund Inc. and DLJ, the President/Counsel of AXA Belgium and AXA Industry S.A., the Administrator of Hestia Fund, ECU Invest, and Hottinguer Gestion and is a Member of Council of Surveillance d'EMBA N.V. AXA is a parent of the Partnership.
Mr. Jenrette was a director of Alliance from 1971 to 1985 and was reelected a director in November 1987. He is Chairman of the Board of Directors and Chief Executive Officer of ECI and Chairman of the Executive Committee of the Board of Directors of Equitable. He was Chairman of the Board of Directors of Equitable from July 1987 until March 1994 and has been a Director of Equitable since 1985 and Chairman, President and Chief Executive Officer of EIC since September 1988. He was Chief Investment Officer of Equitable from July 1986 until March 1991. Mr. Jenrette is also a director of Advanced Micro Devices and the New York Historical Society, Chairman of Historic Hudson Valley and Federal Hall Memorial Associates, a Trustee of Rockefeller Foundation and the University of North Carolina and a member of the Visiting Committee of the American Wing, Metropolitan Museum of Art and the Governor's Council on Hudson River Greenway. ECI and Equitable are parents of the Partnership.
Mr. Melone was elected a director of Alliance in January 1991. He is President and Chief Operating Officer of ECI and has been Chairman and Chief Executive Officer of Equitable since March 1994. He was President and Chief Executive Officer of Equitable from 1991 until March 1994. From 1984 to 1990, he was President of The Prudential Insurance Company of America. ECI and Equitable are parents of the Partnership.
Mr. O'Neil was elected a Director of Alliance in October 1993. He joined Equitable in 1988, serving as a Senior Vice President from February 1989 to April 1992 and was elected Executive Vice President and Chief Investment Officer in April 1992. In addition, Mr. O'Neil is President and Director of FHJV Holdings, Inc., Vice President and Director of The Equitable Variable Life Insurance Company, and Director of Equitable Real Estate Investment Management as well as The Equitable Foundation. Equitable is a parent of the Partnership.
Mr. Savage was elected a Director of Alliance in May 1993. He has been Chairman of ACFG, a subsidiary of the Partnership, since July 1993. Prior to this, he was with ECMC, serving as Vice Chairman from June 1989 to April 1992, and Chairman from April 1992 to July 1993. In addition, Mr. Savage is a Director of Lockheed Corporation and ARCO Chemical Corporation.
Mr. Smith was elected a Director of Alliance in July 1993. He has been a Managing Director of AXA Equity and Law, a subsidiary of AXA, since January 1991. Mr. Smith was also an Investment Manager with Equity and Law Life Assurance Society plc. from 1983 to 1991. AXA is a parent of the Partnership.
Ms. Talley was elected a Director of Alliance in October 1993. She was with Melhado Flynn from January 1987 to December 1989. Ms. Talley is a Governor of the National Association of Securities Dealers, Vice Chairman of the Board of W.P. Carey & Co. as well as a trustee of Smith Barney-Shearson's TRAK, Advisor Fund and Equity & Income Funds. In addition she serves as Director of Corporate Property Associates, Series 10-1 W.P. Carey Real Estate Limited Partnerships, Biocraft Labs, Schroeders Asian Growth Fund, the New York State Industrial Development Board, the New York State Common Retirement Fund and Global Asset Management Funds, Inc.
Ms. Williams was elected a Director of Alliance in October 1993. She is currently the Director of Special Projects of the Partnership. She serves on the boards of the India Liberalisation Fund, The Spain Fund, The Austria Fund, The Visiting Committee for Prints and Illustrated Books, The Board of The Spanish Institute (and its Art Advisory Committee), The Wolfsonian Foundation and The Exhibition Committee of The Equitable Gallery. Ms. Williams is the wife of Dave H. Williams.
Mr. Brewer joined Alliance in 1987 and has been Senior Vice President and General Counsel since 1991. From 1987 until 1990 Mr. Brewer was Vice President and Assistant General Counsel of Alliance.
Mr. Joseph joined Alliance in 1984 and has been Senior Vice President- Finance and Chief Accounting Officer since January 1994. He was Senior Vice President and Controller from 1989 until January 1994. From 1986 until 1989 Mr. Joseph was Vice President and Controller of Alliance and from 1984 to 1986 Mr. Joseph was a Vice President and the Controller of AFS, a subsidiary of the Partnership.
Certain executive officers of Alliance are also directors or trustees and officers of various Alliance Mutual Funds and The Hudson River Trust and are directors and officers of certain of the Partnership's subsidiaries.
Under the terms of the Standstill Agreement dated as of July 18, 1991, as amended ("Standstill Agreement"), among ECI, Equitable and AXA, AXA or the Voting Trustees are entitled to nominate 49% of the members of the Board of Directors of the General Partner. See "Item 12. Security Ownership of Certain Beneficial Owners and Management - Principal Security Holders".
All directors of the General Partner hold office until the next annual meeting of the stockholder of the General Partner and until their successors are elected and qualified. All officers serve at the discretion of the General Partner's Board of Directors.
The General Partner has an Audit Committee composed of its independent directors Mr. Holloway and Ms. Talley. The Audit Committee reports to the Board of Directors with respect to the selection and terms of engagement of the Partnership's independent auditors and reviews various matters relating to the Partnership's accounting and auditing policies and procedures. The Audit Committee held four meetings in 1993.
The General Partner has a Board Compensation Committee composed of Messrs. Williams, Holloway and Jenrette. The Board Compensation Committee is responsible for compensation and compensation related matters, including, but not limited to, exclusive responsibility and authority for determining bonuses, contributions and awards under most employee incentive plans or arrangements, amending or terminating such plans or arrangements or any welfare benefit plan or arrangement or adopting any new incentive, fringe benefit or welfare benefit plan or arrangement. The Board Compensation Committee consults with a Management Compensation Committee consisting of Messrs. Williams, Calvert, Carifa and Harrison with respect to matters within its authority.
The General Partner pays directors who are not employees of the Partnership, Equitable or any affiliate of Equitable an annual retainer of $18,000 plus $1,000 per meeting attended of the Board of Directors and $500 per meeting of a committee of the Board of Directors not held in conjunction with a Board of Directors meeting. Other directors are not entitled to any additional compensation from the General Partner for their services as directors. The Board of Directors meets quarterly.
Section 16(a) of the Securities Exchange Act of 1934 requires the General Partner's directors and executive officers, and persons who own more than 10% of the Units, to file with the SEC and NYSE initial reports of ownership and reports of changes in ownership of Units. To the best of the Partnership's knowledge, during the year ended December 31, 1993 all Section 16(a) filing requirements applicable to its executive officers, directors and 10% beneficial owners were complied with, except that initial reports of beneficial ownership on Form 3 were not filed on a timely basis on behalf of Mr. de Castries, Mr. Smith and Ms. Talley, directors of the General Partner, following their elections in 1993. None of them owned any Units then and none has acquired any Units.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth all plan and non-plan compensation awarded to, earned by or paid to the Chairman of the Board and each of the four most highly compensated executive officers of the General Partner at the end of 1993:
On February 10, 1993 the Partnership declared a two-for-one Unit Split payable to Unitholders of record on February 22, 1993. All Unit amounts in Item 11 have been adjusted to reflect the Unit Split.
Compensation Agreements with Certain Executive Officers
In connection with the transfer of ACMC's business to the Partnership on April 21, 1988 Messrs. Williams, Harrison, Carifa and Calvert entered into employment agreements with the Partnership. Each of these agreements provides for a base salary and bonus eligibility. The agreements with Messrs. Williams, Harrison, Carifa and Calvert expire on April 21, 1994, 1994, 1996 and 1996, respectively. The base salaries of Messrs. Williams, Harrison, Carifa, Calvert and Joseph are currently $225,000, $200,000, $200,000, $200,000 and $140,000 respectively. Each of these agreements provides that the employee will not engage in competitive practices with the Partnership, Alliance or its affiliates for the term of the agreement unless his employment is terminated by the Partnership other than for cause (as defined below), in which case the nature of the non-compete obligation is significantly relaxed and the term is shortened to the lesser of six months or the remaining employment term. Each of the agreements also restricts the disclosure of confidential information and extends broad indemnification rights, including all of the rights of an "indemnified person" under the Partnership Agreement.
The employment agreements provide that the Partnership may terminate employment for any reason, provided that if employment is terminated by the Partnership without cause (as defined), the employee will be entitled to receive his base salary under the agreement for the remaining term thereof and the benefits otherwise provided under the employee benefit plans in which he participates. If employment is terminated by the Partnership for cause or by reason of an employee's death or disability (based on a finding by the Board of Directors of the General Partner that the employee is physically or mentally incapacitated and has been unable for a period of six months to perform his duties by reason of that incapacity), the employee will not be entitled to receive any further salary beyond that payable for services to the date of termination. Cause is defined to include an employee's continuing willful failure to perform his duties, his gross negligence or malfeasance in the performance of his duties, his breach of a confidentiality or non-compete obligation, his commission of a felony, and various acts on the employee's part by reason of which the Board of Directors of the General Partner determines that the employee's continued employment would be seriously detrimental to the Partnership. Messrs. Williams, Harrison, Carifa and Calvert may terminate their respective employment agreements if their duties, status or title are changed to a lesser level or rank than that in effect on December 31, 1987. In such event, the terminating employee is treated as if the Partnership had terminated his employment other than for cause.
The employment agreements provide for discretionary bonus eligibility. Bonus amounts are fixed by the Board Compensation Committee after receiving recommendations from the Management Compensation Committee. The aggregate amount
available for bonuses and contributions and awards under various employee plans to all employees is based on the annual adjusted consolidated net operating earnings of the Partnership.
In connection with Equitable's 1985 acquisition of DLJ, the former parent of ACMC, ACMC entered into employment agreements with Messrs. Williams, Harrison, Carifa and Calvert. Each agreement provided for deferred compensation payable in stated monthly amounts for ten years commencing at age 65, or earlier in a reduced amount in the event of disability or death, if the individual involved so elects. The right to receive such deferred compensation is vested. Assuming payments commence at age 65, the annual amount of deferred compensation payable for ten years to Messrs. Williams, Harrison, Carifa and Calvert is $378,900, $328,332, $522,036 and $434,612, respectively. While the Partnership assumed responsibility for payment of these deferred compensation obligations, ACMC and Alliance are required, subject to certain limitations, to make capital contributions to the Partnership in an amount equal to the payments, and ACMC is also obligated to the employees for the payments. ACMC's obligations to make capital contributions to the Partnership are guaranteed, subject to certain limitations, by EIC, the parent of Alliance.
Employee Benefit Plans
UNIT ACQUISITIONS. In 1988 the executive officers named in the Summary Compensation Table ("Named Executive Officers") acquired from ACMC, pursuant to Restricted Limited Partnership Units Acquisition Agreements ("Restricted Units Agreements"), an aggregate of 5,048,172 Restricted Units. Messrs. Williams, Harrison, Carifa, Calvert and Joseph acquired 1,583,756, 1,583,756, 929,868, 928,638 and 22,154 Restricted Units, respectively. The cost of the Restricted Units was either $0.50 or $1.00 per Restricted Unit. The price for the Restricted Units was paid either by a reduction of the Named Executive Officer's unvested account balance under the Partners Plan, in cash, or a combination thereof.
Each Named Executive Officer has the right to vote his Restricted Units and to receive Partnership distributions made on the Restricted Units. All Restricted Units become nonforfeitable, i.e., vest, over periods of employment ending April 21, 1994 and in certain other situations as described below. 1,170,963, 1,170,963, 1,170,962 and 1,163,570 of the Restricted Units issued to the Named Executive Officers vested on April 21, 1990, April 21, 1991, April 21, 1992 and April 21, 1993, respectively. The remaining 371,714 unvested Restricted Units will vest on April 21, 1994. Unvested Restricted Units are not transferable. Cessation of employment with the Partnership during the vesting period will result in the automatic and immediate forfeiture to ACMC (or its designated affiliate) of unvested Restricted Units unless employment ceases as a result of the Named Executive Officer's disability (as defined), death or termination by the Partnership without cause (as defined). Under the definition of cause a resignation caused by reason of the Partnership's changing his duties, status or title to a lesser level or rank than that in effect on December 31, 1987, will result in the full vesting of the Restricted Units issued to Messrs. Williams, Harrison, Carifa and Calvert. Disability and cause for this purpose are defined in the same manner as in the employment agreements discussed above. See "Compensation Agreements with Named Executive Officers."
395,936, 395,936, 185,972, and 185,726 of the Restricted Units acquired by Messrs. Williams, Harrison, Carifa and Calvert, respectively, vested on April 21, 1993. The fair market value of these Restricted Units on the date of vesting is included in column (i) of the Summary Compensation Table.
UNIT OPTION PLAN. Pursuant to the Partnership's Unit Option Plan key employees of the Partnership and its subsidiaries, other than Messrs. Williams, Harrison, Carifa and Calvert, may be granted options to purchase up to 4,923,076 Units. Options may be granted only to employees who the Board Compensation Committee of the General Partner, which administers the Plan, after obtaining recommendations from the Management Compensation Committee, determines materially contribute, or are expected to materially contribute, to the growth and profitability of the Partnership's business. The number of options to be granted to any employee is to be determined in the discretion of the Board Compensation Committee. Options may be granted with terms of up to ten years, and an employee's right to exercise each option will vest at a rate no faster than 20% per year commencing on the first anniversary of the date of grant. Each option will have an exercise price no less than the fair market value of the Units subject to option at the time the option is granted, payable in cash. Generally, options may only be exercisable while the optionee is employed by the Partnership. Options may not be granted under the Unit Option Plan after ten years from its adoption.
During 1993 none of the Named Executive Officers were granted or awarded options under the Unit Option Plan by the Partnership or exercised any options granted under the Unit Option Plan. As of December 31, 1993 Mr. Joseph held options to purchase 70,000 Units. Options to purchase 38,000 of the Units are currently exercisable. As of December 31, 1993 the aggregate dollar value of Mr. Joseph's exercisable and unexercisable in-the-money options were $732,000 and $528,313, respectively.
1993 UNIT OPTION PLAN. Pursuant to the Partnership's 1993 Unit Option Plan key employees of the Partnership and its
subsidiaries may be granted options to purchase Units. The aggregate number of Units that may be the subject of options granted or awarded under the 1993 Unit Option Plan, the Unit Bonus Plan and the Century Club Plan may not exceed 3,200,000 Units ("Overall Limitation"). In addition the maximum aggregate number of Units that may be the subject of options granted or awarded under the 1993 Unit Option Plan, the Unit Bonus Plan and the Century Club Plan in any of the years ended July 22, 1994, 1995, 1996 and 1997 may not exceed 800,000 Units ("Annual Limitation"). The maximum number of Units that may otherwise be the subject of options granted under the 1993 Unit Option Plan may be increased by the number of Units tendered to the Partnership by employees in payment of either the exercise price or withholding tax liabilities. Options may be granted only to employees who a committee of the General Partner consisting of Messrs. Jenrette and Holloway, which administers the Plan, after obtaining recommendations from the Management Compensation Committee, determines materially contribute, or are expected to materially contribute, to the growth and profitability of the Partnership's business. The number of options to be granted to any employee is to be determined in the discretion of the Board Compensation Committee. Options may be granted with terms of up to ten years, and an employee's right to exercise each option will vest at a rate no faster than 20% per year commencing on the first anniversary of the date of grant. Each option will have an exercise price no less than the fair market value of the Units subject to the option at the time the option is granted, payable in cash. Generally, options may only be exercisable while the optionee is employed by the Partnership or one of its subsidiaries. Options may not be granted under the 1993 Unit Option Plan after ten years from its adoption.
None of the Named Executive Officers has been granted or awarded options under the 1993 Unit Option Plan.
PROFIT SHARING PLAN. The Partnership maintains a qualified defined contribution profit sharing plan covering most employees of the Partnership who have attained age 21 and completed one year of service. Annual contributions are determined by the Board of Directors in its sole discretion and are allocated among participants who are employed by a participating employer on the last business day of the calendar year involved by crediting each participant with the same proportion of the contribution as the participant's base compensation bears to the total base compensation of all participants. The plan provides for a 401(k) salary reduction election under which the Partnership may match a participant's election to reduce up to 5% of base salary. A partici- pant's interest in the plan is 100% vested after the participant has completed three years of service although account balances deriving from salary reductions are 100% vested at all times. The Partnership's contributions under the plan for a given year may not exceed 15% of the aggregate compensation paid to all participants for that year. Contributions to a participant's plan account (including contributions made by a participant) for a particular year may not exceed 25% of the participant's compensation for that year or $30,000, whichever is less. The amount of the benefits ultimately distributed to an employee is dependent on the investment performance of the employee's account under the plan. Distribution of vested account balances under the plan is made upon termination of employment either in a lump sum or in installments for a specific period of years. If a participant dies prior to termination of his employment, the entire value of his account is paid to the participant's beneficiary. For 1993, vested contributions to the plan for the accounts of Messrs. Williams, Harrison, Carifa, Calvert and Joseph were $26,250, $25,000, $25,000, $25,000 and $19,450, respectively. These amounts are included in column (i) of the Summary Compensation Table.
PROFIT SHARING PLAN FOR FORMER ECMC EMPLOYEES. The Partnership maintains a qualified defined contribution profit sharing plan covering most former ECMC employees with vesting and benefit contribution allocation methods substantially equivalent to the profit sharing plan maintained by ECMC prior to the acquisition. The plan provides for a 401(k) salary reduction election under which a participant may reduce up to 12% of compensation and the Partnership must match the first 2 1/2% of compensation so reduced in 1993 and 1994. A participant's entire interest in the plan is 100% vested at all times. The Partnership's contributions under the plan for a given year may not exceed 15% of the aggregate compensation paid to all participants for that year. Contributions to a participant's plan account (including contributions made by a participant) for a particular year may not exceed 25% of the participant's base compensation for that year or $30,000, whichever is less. The amount of the benefits ultimately distributed to an employee is dependent on the investment performance of the employee's account under the plan. Distribution of vested account balances under the plan is made upon termination of employment either in a lump sum or in installments for a specific period of years. If a participant dies prior to termination of his employment, the entire value of his account is paid to the participant's beneficiary.
None of the Named Executive Officers is a participant in this plan.
RETIREMENT PLAN. The Partnership maintains a qualified, non-contributory, defined benefit retirement plan covering most employees of the Partnership who have completed one year of service and attained age 21. Employer contributions are determined by application of actuarial methods and assumptions to reflect the cost of benefits under the plan. Each participant's benefits are determined under a formula which takes into account years of credited service, the participant's average compensation over prescribed periods and Social Security covered compensation. The maximum annual benefit payable under the plan may not exceed the lesser of $100,000 or 100% of a participant's average aggregate compensation for the three consecutive years in which he received the highest aggregate compensation from the Partnership or such lower limit as may be imposed by the Internal Revenue Code on certain participants by reason of their coverage under another qualified plan maintained by the Partnership. A participant is fully vested after the completion of five years of service. The plan generally provides for payments to or on behalf of each vested employee upon such employee's retirement at the normal retirement age provided under the plan or later, although provision is made for payment of early retirement benefits on an actuarially reduced basis. Normal retirement age under the plan is 65. Death benefits are payable to the surviving spouse of an employee who dies with a vested benefit under the plan.
The table below sets forth with respect to the retirement plan the estimated annual straight life annuity benefits payable upon retirement at normal retirement age for employees with the remuneration and years of service indicated.
Assuming they are employed by the Partnership until age 65, the credited years of service under the plan for Messrs. Williams, Harrison, Carifa, Calvert and Joseph would be 20, 24, 40, 38 and 28, respectively. Compensation on which plan benefits are based includes only base compensation and not bonuses, incentive compensation, profit-sharing plan contributions or deferred compensation. The compensation for calculation of plan benefits for these five individuals for 1993 is $225,000, $200,000, $200,000, $200,000 and $129,673, respectively.
UNIT BONUS PLAN. Pursuant to the Partnership's Unit Bonus Plan the Board Compensation Committee may award Units to key employees of the Partnership and its subsidiaries in lieu of all or a portion of the cash bonus that they would otherwise receive. The aggregate number of Units that may be the subject of awards or grants under the Unit Bonus Plan, the 1993 Unit Option Plan and the Century Club Plan may not exceed the Overall Limitations and the maximum aggregate number of Units that may be the subject of awards or grants under the Unit Bonus Plan, the 1993 Unit Option Plan and the Century Club Plan in any of the years ended July 22, 1994, 1995, 1996 and 1997 may not exceed the Annual Limitation. Units that may otherwise be awarded under the Unit Bonus Plan may be increased by the number of Units tendered to the Partnership in payment of withholding tax liabilities in respect of Unit Bonus Plan awards. Units awarded under the Unit Bonus Plan may be vested or unvested (i.e., subject to forfeiture) at the time of award. Unvested Units will vest or become nonforfeitable in accordance with the conditions specified by the Board Compensation Committee at the time of award.
None of the Named Executive Officers has been awarded Units under the Unit Bonus Plan.
CENTURY CLUB PLAN. Pursuant to the Partnership's Century Club Plan up to 200,000 Units may be awarded to employees of AFD or another subsidiary of the Partnership who attain certain sales targets or sales criteria determined by the Century Club Committee which consists of Messrs. John D. Carifa and Michael Laughlin, President and Executive Vice President of the General Partner, respectively. The maximum aggregate number of Units that may be awarded under the Century Club Plan, the 1993 Unit Option Plan and the Unit Bonus Plan may not exceed the Overall Limitation and the maximum aggregate number of Units that may be awarded under the Century Club Plan, the 1993 Unit Option Plan and the Unit Bonus Plan in any of the years ended July 22, 1994, 1995, 1996 and 1997 may not exceed that Annual Limitation. Units awarded under the Century Club Plan may be vested or unvested (i.e., subject to the forfeiture) at the time of award. Unvested Units will vest or become nonforfeitable in accordance with the conditions specified by the Century Club Committee at the time of award.
None of the Named Executive Officers has been awarded Units under the Century Club Plan.
PARTNERS PLAN. Since 1983 a nonqualified, unfunded deferred compensation program known as the Partners Plan has been maintained under which certain key employees received incentive awards pursuant to a formula set each year by the Management Compensation Committee. No awards have been or will be made under the Partners Plan for any year after 1987. All awards are fully vested. Unless accelerated, award account balances generally are distributed upon resignation, retirement, disability or death. The Board of Directors of the General Partner has the right to accelerate vesting and make distributions of up to 90% of a participant's account balance if the key employee agrees to extend the term of his employment for a period of at least one year. Until distributed, the awards are credited with interest based on prevailing market rates plus, for the years prior to 1989, a premium if the Partnership's earnings growth rate exceeded certain levels. Interest credited during 1993 for the accounts of Messrs. Williams, Harrison, Carifa and Calvert was $7,323, $3,115, $2,863, and $2,526 respectively. These amounts are included in column (i) of the Summary Compensation Table. This amount is included in column (h) of the Summary Compensation Table.
CAPITAL ACCUMULATION PLAN. Since 1985 a nonqualified, unfunded deferred compensation program known as the Capital Accumulation Plan has been maintained to provide retirement benefits for key employees and their beneficiaries which supplement their benefits under the Retirement Plan described above. Under this plan, at the end of 1985, 1986 and 1987, awards were made for each participant, selected on the basis of performance by the Management Compensation Committee, equal to a percentage of the participant's base salary and the participant's discretionary bonus for the year. The amount awarded was credited to the participant's account on the Partnership's books to which interest is thereafter credited, until distributed or forfeited, based on prevailing market rates. A participant's account balance vests based on the participant's years in the plan with no vesting for zero to four years of participation, 30% vesting after five to seven years with gradually increased vesting thereafter ranging to 87% after 35 years of participation and 100% vesting at age 65 or death. Upon termination of employment other than by reason of permanent disability or death, the participant's vested account balance is to be paid out in ten equal annual installments. In the event of permanent disability, the participant is to receive the higher of the vested balance at the time of disability or 50% of the total balance at the time of disability, in either case payable in ten equal annual installments. In the event of death, the participant's beneficiary is to receive the higher of (i) the participant's account balance paid in ten equal annual installments together with interest or (ii) annually 50% of the participant's total cash compensation for the year prior to the year of the participant's death payable until the participant would have attained age 65, but in no event for less than ten years.
While the Partnership is responsible for the payment of all obligations under the plan, ACMC and Alliance are required, subject to certain limitations, to make capital contributions to the Partnership in an amount equal to the payments. ACMC's obligations are guaranteed, subject to certain limitations, by EIC. No additional awards will be made under this plan, but employees will continue to vest in their existing account balances and to be credited with interest at prevailing market rates on these balances. A participant's total cash compensation for 1987 increased by 5% per year, compounded annually, will be considered his total cash compensation for purposes of determining the amount of any death benefits payable in respect of the participant. The Board of Directors of the General Partner intends to cancel this plan if tax legislation is enacted which adversely affects certain benefits derived by ACMC from insurance on the lives of certain of the Partnership's employees purchased in connection with the plan. If the plan is cancelled, the Board of Directors of the General Partner may, at its option, either pay each participant his then vested account balance or continue to maintain the account balances for vesting and distribution as described above as if the plan had not terminated, provided that in such event no death benefit based on a participant's total cash compensation will be paid. The plan account balances which became vested during 1993 for the accounts of Messrs. Williams, Harrison, Carifa and Calvert were $30,011, $29,916, $17,658 and $18,423, respectively. These amounts are included in column (i) of the Summary Compensation Table.
DEFERRAL PLAN. Under this plan, certain employees of the Partnership may elect to defer for at least one year the receipt of base or bonus compensation otherwise payable in a given year to January 31 of the year selected. Interest is credited at prevailing market rates on the amounts deferred under this plan until paid. In certain cases, 10% of a deferred amount is subject to forfeiture if the employee's employment terminates prior to the January 31 payment date for any reason other than death or disability. There was no compensation deferred from 1993 to a subsequent year for the Named Executive Officers. During 1993 there were no payments of previously deferred compensation to or interest credited on amounts deferred by any of the Named Executive Officers.
DLJ PLANS. Prior to Equitable's 1985 acquisition of DLJ, certain employees of the Partnership participated in various DLJ employee benefit plans and arrangements. Since the acquisition, no employer contributions or awards have been made, nor in the future are any employer contributions or awards to be made, under these plans or arrangements for any employee of the Partnership. No deferral of compensation earned by any such employee for services rendered since the acquisition has been permitted under any such plan or arrangement. The Partnership has no liability for and will not bear the cost of any benefits under these plans and arrangements.
In 1983, DLJ adopted an Executive Supplemental Retirement Program under which certain employees of the Partnership deferred a portion of their 1983 compensation in return for which DLJ agreed to pay each of them a specified annual retirement benefit for 15 years beginning at age 65. Benefits are based upon the participant's age and the amount deferred and are calculated to yield an approximate 12.5% annual compound return. In the event of the participant's disability or death, an equal or lesser amount is to be paid to the participant or his beneficiary. After age 55, participants the sum of whose age and years of service equals 80 may elect to have their benefits begin in an actuarially reduced amount before age 65. DLJ has funded its obligation under the Program through the purchase of life insurance policies. The following table shows as to the Named Executive Officers who are participants in the Plan the estimated annual retirement benefit payable at age 65. Each of these individuals is fully vested in the applicable benefit.
Estimated Annual Name Retirement Benefit ---- ------------------ Dave H. Williams $ 41,825 Alfred Harrison 50,246 John D. Carifa 114,597 Bruce W. Calvert 145,036
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Security Holders
The Partnership has no information that any person beneficially owns more than 5% of the outstanding Units except (i) ACMC and ECMC wholly-owned subsidiaries of ECI, and (ii) as reported on Schedule 13D, filed with the SEC by AXA and certain of its affiliates pursuant to the Securities Exchange Act of 1934. The following table and notes have been prepared in reliance upon such filing for the nature of ownership and an explanation of overlapping ownership.
(1) For insurance regulatory purposes the shares of capital stock of ECI beneficially owned by AXA have been deposited into a voting trust which has an initial term of 10 years ("Voting Trust"). The Voting Trustees, who must be members of AXA's Conseil d'Administration (the body analogous to a U.S. corporation's board of directors), are Claude Bebear, Patrice Garnier and Henri de Clermont-Tonnerre. The Voting Trustees have agreed to exercise their voting rights to protect the legitimate economic interests of AXA, but with a view to ensuring that certain of the indirect minority shareholders of ECI do not exercise control over ECI or certain of its insurance subsidiaries. See "Item 1. Business-General".
(2) The Voting Trustees may be deemed to be beneficial owners of all Units beneficially owned by AXA. In addition, the Mutuelles AXA, as a group, and each of Finaxa and Midi Participations may be deemed to be beneficial owners of all Units beneficially owned by AXA. By reason of the fact that the Voting Trustees are members of AXA's Conseil d'Administration and by virtue of the provisions of the Voting Trust Agreement, AXA may be deemed to have shared voting power with respect to the Units. Subject to the restrictions on the disposition of shares of the capital stock of ECI in the Standstill Agreement, AXA has the power to dispose or direct the disposition of all shares of the capital stock of ECI deposited in the Voting Trust. By reason of their relationship with AXA, the Mutuelles AXA, as a group, and each of Finaxa and Midi Participations may be deemed to share the power to vote or to direct the vote and to dispose or to direct the disposition of all the Units beneficially owned by AXA. The address of each of AXA, Midi Participations, Finaxa and the Voting Trustees is 23 Avenue Matignon, Paris, France. The addresses of the Mutuelles AXA are as follows: The address of each of AXA Assurances I.A.R.D. Mutuelle and AXA Assurances Vie Mutuelle is La Grande Arche, Paroi Nord, Paris La Defense, France; the address of each of Alpha Assurances Vie Mutuelle and Alpha Assurances I.A.R.D. Mutuelle is 100-101 Terrasse Boieldieu, Paris La Defense, France; and the address of Uni Europe Assurance Mutuelle is 24 Rue Drouot, Paris, France. See "Item 1. Business-General".
(3) By reason of their relationship, AXA, the Voting Trustees, ECI, Equitable, ACMC, ECMC, the Mutuelles AXA, Finaxa and Midi Participations may be deemed to share the power to vote or to direct the vote or to dispose or direct the disposition of the 45,371,500 Units.
(4) Includes 100,000 Units which are issuable upon conversion of the Class A Limited Partnership Interest.
Management
The following table shows, as of March 14, 1994, the beneficial ownership of Units by each director and each Named Executive Officer of the General Partner who owns more than 1% of the outstanding Units and by all directors and executive officers of the General Partner as a group:
The Partnership has no information that any director of the General Partner, any Named Executive Officer or the directors and executive officers of the General Partner as a group beneficially own any class of equity securities of any of the Partnership's parents or subsidiaries other than directors' qualifying shares except that (i) Mr. Williams has been granted options to purchase 100,000 shares of the common stock of ECI, (ii) Mr. Benson has been granted options to purchase 250,000 shares of the common stock of ECI, (iii) Mr. Calvert has been granted options to purchase 50,000 shares of the common stock of ECI, (iv) Mr. Carifa has been granted options to purchase 50,000 shares of the common stock of ECI, (v) Mr. de Castries has been granted options to purchase 15,000 shares of AXA, (vi) Mr. Dupont-Madinier has been granted options to purchase 7,938 AXA shares, (vii) Mr. Hellebuyck owns 1,125 shares of AXA and has been granted options to purchase 1,500 shares of AXA, (viii) Mr. Hottinguer owns 1,621 shares of AXA and 1,840 shares of Finaxa, (ix) Mr. Jenrette owns 85 shares of the common stock of ECI and has been granted options to purchase 600,000 shares of the common stock of ECI, (x) Mr. Melone owns 182 shares of the common stock of ECI and has been granted options to purchase 400,000 shares of the common stock of ECI, (xi) Mr. O'Neil owns 27 shares of the common stock of ECI and has been granted options to purchase 100,000 shares of the common stock of ECI, (xii) Mr. Savage owns 136 shares of the common stock of ECI, and (xiii) Mr. Smith has been granted options to purchase 1,000 shares of AXA.
The General Partner makes all decisions relating to the management of the Partnership. The General Partner has agreed that it will conduct no business other than managing the Partnership, although it may make certain investments for its own account. Conflicts of interest, however, could arise between the General Partner and the Unitholders.
Section 17-403(b) of the Delaware Revised Uniform Limited Partnership Act (the "Delaware Act") states that, except as provided in the Delaware Act or the partnership agreement, a general partner of a limited partnership has the same liabilities to the partnership and to the limited partners as a general partner in a partnership without limited partners. While, under Delaware law, a general partner of a limited partnership is liable as a fiduciary to the other partners, the Agreement of Limited Partnership of Alliance Capital Management L.P. (As Amended and Restated)("Partnership Agreement") sets forth a more limited standard of liability for the General Partner. The Partnership Agreement provides that the General Partner is not liable for monetary damages to the Partnership for errors in judgment or for breach of fiduciary duty (including breach of any duty of care or loyalty), unless it is established that the General Partner's action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to the Partnership, with reckless disregard for the best interests of the Partnership or with actual bad faith on the part of the General Partner, or constituted actual fraud. Whenever the Partnership Agreement provides that the General Partner is permitted or required to make a decision (i) in its "discretion," the General Partner is entitled to consider only such interests and factors as it desires and has no duty or obligation to consider any interest of or other factors affecting the Partnership or any Unitholder or (ii) in its "good faith" or under another express standard, the General Partner will act under that express standard and will not be subject to any other or different standard imposed by the Partnership Agreement or applicable law.
In addition, the Partnership Agreement grants broad rights of indemnification to the General Partner and its directors and affiliates and authorizes the Partnership to enter into indemnification agreements with the directors, officers, partners, employees and agents of the Partnership and its affiliates. The Partnership has granted broad rights of indemnification to officers of the General Partner and employees of the Partnership. In addition, the Partnership assumed indemnification obligations previously extended by Alliance to its directors, officers and employees. The foregoing indemnification provisions are not exclusive, and the Partnership is authorized to enter into additional indemnification arrangements. The Partnership has obtained directors and officers liability insurance.
The Partnership Agreement also allows transactions between the Partnership and the General Partner or its affiliates if the transactions are on terms determined by the General Partner to be comparable to (or more favorable to the Partnership than) those that would prevail with any unaffiliated party. The Partnership Agreement provides that those transactions are deemed to meet that standard if such transactions are approved by a majority of those directors of the General Partner who are not directors, officers or employees of any affiliate of the General Partner (other than the Partnership and its subsidiar- ies) or, if in the reasonable and good faith judgment of the General Partner, the transactions are on terms substantially comparable to (or more favorable to the Partnership than) those that would prevail in a transaction with an unaffiliated party.
The Partnership Agreement expressly permits all affiliates of the General Partner (including Equitable and its other subsidiaries) to compete, directly or indirectly, with the Partnership, to engage in any business or other activity and to exploit any opportunity, including those that may be available to the Partnership. Equitable and some of its subsidiaries currently compete with the Partnership. See "Item 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Competition
AXA, Equitable and certain of their direct and indirect subsidiaries provide financial services, some of which are competitive with those offered by the Partnership. The Partnership Agreement specifically allows Equitable and its subsidiaries (other than the General Partner) to compete with the Partnership and to exploit opportunities that may be available to the Partnership. Equitable and certain of its subsidiaries have substantially greater financial resources than the Partnership or the General Partner.
Financial Services
The Partnership Agreement permits Equitable and its affiliates to provide services to the Partnership on terms comparable to (or more favorable to the Partnership than) those that would prevail in a transaction with an unaffiliated third party. The Partnership believes that its arrangements with Equitable and its affiliates are at least as favorable to the Partnership as could be obtained from an unaffiliated third party, based on its knowledge of and inquiry with respect to comparable arrangements with or between unaffiliated third parties.
The Partnership acts as the investment manager for the general and separate accounts of Equitable and its insurance company subsidiaries pursuant to investment advisory agreements. During 1993 the Partnership received approximately $55.4 million in fees pursuant to these agreements. In connection with the services provided under these agreements the Partnership provides ancillary accounting, valuation, reporting, treasury and other services for regulatory purposes under service agreements. During 1993 the Partnership received approximately $6.8 million in fees pursuant to these agreements. Equitable provides certain legal and other services to the Partnership relating to certain insurance and other regulatory aspects of the general and separate accounts of Equitable and its insurance company subsidiaries. During 1993 the Partnership paid approximately $1.4 million to Equitable for these services.
During 1993 the Partnership paid Equitable approximately $8.3 million for certain services provided with respect to the marketing of the variable annuity insurance and variable life insurance products for which The Hudson River Trust is the funding vehicle.
A life insurance subsidiary of Equitable has issued to ACMC life insurance policies on certain employees of the Partnership, the costs of which are to be borne by ACMC without reimbursement by the Partnership. During 1993 ACMC paid approximately $5.7 million in insurance premiums on these policies.
The Partnership and its employees are covered by various policies maintained by Equitable and its other subsidiaries. The amount of premiums for these group policies paid by the Partnership to Equitable was approximately $.2 million for 1993.
The Partnership provides investment management services to certain employee benefit plans of Equitable and DLJ. Advisory fees from these accounts totalled approximately $2.9 million for 1993 including $1.8 million from the separate accounts of Equitable.
Equico was the Partnership's second largest distributor of load mutual funds in 1993 for which it received sales concessions from the Partnership on sales of $475 million. In 1993 Equico also distributed certain of the Partnership's cash management products. Equico received distribution payments totalling $3.0 million in 1993 for these services.
DLJ Securities Corporation and Pershing distribute certain Alliance Mutual Funds and cash management products and receive sales concessions and distribution payments. In addition, the Partnership and Pershing have an agreement pursuant to which Pershing recommends to certain of its correspondent firms the use of Alliance cash management products for which Pershing is allo- cated a portion of the revenues derived by the Partnership from sales through the Pershing correspondents. Amounts paid by the Partnership to DLJ Securities Corporation, Pershing and Wood Struthers & Winthrop Management Corp., a subsidiary of DLJ, in connection with the above distribution services were $10.7 million in 1993. DLJ and its subsidiaries also provide the Partnership with brokerage and various other services, including clearing, investment banking, research, data processing and administrative services. Brokerage, the expense of which is borne by the Partnership's clients, aggregated approximately $0.1 million for 1993. During 1993, the Partnership paid $.2 million to DLJ and its subsidiaries for all such other services.
Prior to the Partnership's acquisition of ECMC, during 1993 ECMC reimbursed Equitable in the amount of $9.9 million for rent and the use of certain services and facilities. ECMC also paid Equitable $1.9 million pursuant to a tax sharing arrangement. Subsequent to the Partnership's acquisition of ECMC during 1993 the Partnership reimbursed Equitable in the amount of $1.6 million for rent and the use of certain services and facilities.
Other Transactions
During 1993 the Partnership paid certain legal and other expenses incurred by Equitable and its insurance company subsidiaries relating to the general and separate accounts of Equitable and such subsidiaries for which it has been or will be fully reimbursed by Equitable. The largest amount of such indebtedness outstanding during 1993 was $1.2 million which represents the amount outstanding on December 31, 1993.
Equitable and its affiliates are not obligated to provide funds to the Partnership, except for ACMC's and the General Partner's obligation to fund certain of the Partnership's deferred compensation and employee benefit plan obligations referred to under "Compensation Agreements with Named Executive Officers" and "Capital Accumulation Plan". The Partnership Agreement permits Equitable and its affiliates to lend funds to the Partnership at the lender's cost of funds.
ACMC and the General Partner are obligated, subject to certain limitations, to make capital contributions to the Partnership in an amount equal to the payments the Partnership is required to make as deferred compensation under the employment agreements entered into in connection with Equitable's 1985 acquisition of DLJ, as well as obligations of the Partnership to various employees and their beneficiaries under the Partnership's Capital Accumulation Plan. In 1993, ACMC made capital contributions to the Partnership of $.7 million. ACMC's obligations to make these contributions are guaranteed by EIC subject to certain limitations. All tax deductions with respect to these obligations, to the extent funded by ACMC, Alliance or EIC, will be allocated to ACMC or Alliance.
Reba W. Williams, the wife of Dave H. Williams, was employed by the Partnership during 1993 and received compensation in the amount of $102,000.
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) The following is a list of the documents filed as a part of this annual report on Form 10-K:
Other schedules are omitted because they are not applicable, or the required information is set forth in the financial statements or notes thereto.
(b) REPORTS ON FORM 8-K.
A report on Form 8-K dated November 17, 1993 was filed during the last quarter of 1993 reporting that the Partnership had entered into an Asset Purchase Agreement dated November 16, 1993 with Shields Asset Management, Incorporated ("Shields"), Regent Investor Services Incorporated ("Regent"), Furman Selz Holding Corporation and Xerox Financial Services, Inc. to acquire the business and substantially all of the assets of Shields and Regent.
(c) Exhibits.
The following exhibits required to be filed by Item 601 of Regulation S-K are filed herewith or, in the case of Exhibits 10.54, 10.55, 10.56, 10.57, 10.58 and 13.5, incorporated by reference herein:
EXHIBIT DESCRIPTION
10.54 Amended and Restated Transfer Agreement among Alliance Capital Management L.P., Equitable Capital Management Corporation and Equitable Investment Corporation dated as of February 23, 1993 as amended and restated on May 28, 1993 (1) 10.55 Asset Purchase Agreement among Alliance Capital Management L.P., Shields Asset Management, Incorporated, Regent Investor Services Incorporated, Furman Selz Holding Corporation and Xerox Financial Services, Inc. dated November 16, 1993 (2) 10.56 Alliance Capital Management L.P. 1993 Unit Option Plan (3) 10.57 Alliance Capital Management L.P. Unit Bonus Plan (3) 10.58 Alliance Capital Management L.P. Century Club Plan (3) 13.5 Alliance Capital Management L.P. 1993 Annual Report to Unitholders (pages 43 through 69) 21.1 Subsidiaries of the Registrant 23.1 Consent of KPMG Peat Marwick 24.32 Power of Attorney by James M. Benson 24.33 Power of Attorney by Henri de Castries 24.34 Power of Attorney by Christophe Dupont-Madinier 24.35 Power of Attorney by Jean-Pierre Hellebuyck 24.36 Power of Attorney by Benjamin D. Holloway 24.37 Power of Attorney by Henri Hottinguer
24.38 Power of Attorney by Richard H. Jenrette 24.39 Power of Attorney by Joseph J. Melone 24.40 Power of Attorney by Brian S. O'Neil 24.41 Power of Attorney by Peter G. Smith 24.42 Power of Attorney by Madelon DeVoe Talley
(1) Filed as an Exhibit to the Registrant's Form 8-K dated August 10, 1993. (2) Filed as an Exhibit to the Registrant's Form 8-K dated November 17, 1993. (3) Filed as an Exhibit to the Registrant's Registration Statement on Form S-8 (File No. 33-65932) filed with the Securities and Exchange Commission on July 12, 1993.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Alliance Capital Management L.P. By: Alliance Capital Management Corporation, General Partner Date: March 28, 1994 By: /s/Dave H. Williams ---------------------------- Dave H. Williams Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Date: March 28, 1994 /s/John D. Carifa ---------------------------- John D. Carifa President, Chief Operating Officer and Chief Financial Officer
Date: March 28, 1994 /s/Robert H. Joseph, Jr. ---------------------------- Robert H. Joseph, Jr. Senior Vice President and Chief Accounting Officer
Directors /s/Dave H. Williams * - ---------------------------- ---------------------------- Dave H. Williams Benjamin D. Holloway Chairman and Director Director
* * - ---------------------------- ---------------------------- James M. Benson Henri Hottinguer Director Director
/s/Bruce W. Calvert * - ---------------------------- ---------------------------- Bruce W. Calvert Richard H. Jenrette Director Director
/s/John D. Carifa * - ---------------------------- ---------------------------- John D. Carifa Joseph J. Melone Director Director
* * - ---------------------------- ---------------------------- Henri de Castries Brian S. O'Neil Director Director
* /s/Frank Savage - ---------------------------- ---------------------------- Christophe Dupont-Madinier Frank Savage Director Director
/s/Alfred Harrison * - ---------------------------- ---------------------------- Alfred Harrison Peter Smith Director Director
* * - ---------------------------- ---------------------------- Jean-Pierre Hellebuyck Madelon DeVoe Talley Director Director
*By/s/David R. Brewer, Jr. /s/Reba W. Williams - ---------------------------- ----------------------------- David R. Brewer, Jr. Reba W. Williams (Attorney-in-Fact) Director
Alliance Capital Management L.P. Schedule I - Marketable Securities December 31, 1993
Independent Auditors' Report
The General Partner and Unitholders Alliance Capital Management L.P.
Under date of January 27, 1994, except as to Note 12, which is as of March 7, 1994, we reported on the consolidated statements of financial condition of Alliance Capital Management L.P. and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, changes in partners' capital, and cash flows for the years ended December 31, 1993, 1992 and 1991, as contained in the 1993 Annual Report to Unitholders. These consolidated finan- cial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1993. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedule as listed in the accompanying index (page 34). This financial statement schedule is the responsibility of Alliance Capital Management Corporation, General Partner. Our responsibility is to express an opinion on this financial statement schedule based on our 1993 audit.
In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK
New York, New York January 27, 1994, except as to Note 12, which is as of March 7, 1994