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Alliance Seeks Restructuring Approval

Alliance Capital Management of New York is seeking permission from its unitholders to restructure so that its ownership is divided between publicly-traded units and units of a limited partnership which are not publicly traded.

Alliance announced Aug. 5 that it will hold a special meeting of unitholders on Sept. 22 for a proxy vote on the proposed reorganization, said Karen Caddick, a firm spokesperson. The measure was first announced in April. A proxy statement was filed with the SEC on Aug. 4.

If the proposal is approved, Alliance expects the reorganization to be completed in the fourth quarter of 1999. There would be no change in management or employment responsibilities, the firm said.

Alliance is restructuring to provide tax relief to Alliance's parent company, Equitable Companies of New York, which owns a majority of the firm's stock, Caddick said. Also, the units of the private partnership would provide Alliance with another form of currency to make acquisitions.

The proposed reorganization will give investors in Alliance two choices. They can either continue to hold publicly-traded Alliance units that are subject to a 3.5 percent federal tax on Alliance's gross business income or hold units in a new private limited partnership that is not subject to the 3.5 percent federal tax. The units would be very illiquid and thus more attractive to long-term or institutional investors.

Equitable of New York, which owns a 57 percent stake in Alliance, is paying for the proxy, Caddick said. Seven percent of the remaining units are owned by employees or officers of Alliance, and 36 percent by the general public, Caddick said.

The proxy has been submitted so that institutional shareholders like Equitable can convert their shares into illiquid units for which the income distribution will be higher than for that of publicly-traded shares, she said.

The impetus for the proxy dates back to 1987, when a tax law was passed that required that publicly-traded limited partnerships be taxed like publicly-held corporations. The tax rate was 3.5 percent of gross income, which is assessed on the firm before distributions are made, according to Bob Joseph, chief financial officer of Alliance. There was a 10-year extension period during which the partnerships were not taxed before the law took effect in August, 1997.

Prior to the change, the gross income of limited partnerships was not taxed. When the law changed, there were 25 publicly-traded limited partnerships which became subject to the tax, said Joseph. Of those, many became corporations, some dissolved, and others looked into restructuring to minimize the tax liability, he said.

Two asset management firms that were limited partnerships, PIMCO of Newport Beach, Calif., and NVest of Boston, converted to the dual structure when the 10-year extension period ended, said Larry Dwyer, a spokesperson for NVest.

Alliance did not restructure in 1997 because the firm was instrumental in negotiating legislation that allowed for the limited partnership firms to maintain their partnership status for tax purposes, Joseph said.

"If Alliance acted too quickly [to restructure], people might say, Wait a minute, we just gave you a break here by passing this legislation, now through some sort of a reorganization you're sort of limiting the revenue that the Treasury will be earning,' and we were sensitive to that issue," Joseph said.

The number of exchanges investors make into units of the partnership could affect the unit price, Joseph said. The firm plans to limit the number of exchanges to insure that there are at least 40 million units being traded on the NYSE, he said.

The units in the limited partnership are illiquid because if an investor wants to cash out, he has to get approval.