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AllianceBernstein Holding L.P. 10-K 2008 Documents found in this filing:
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM 10-K
For
the Fiscal Year Ended December 31, 2007
OR
For
the transition period from to
Commission
file number 001-09818
AllianceBernstein
Holding l.p.
(Exact
name of registrant as specified in its charter)
Registrant’s
telephone number, including area code: (212) 969-1000
Securities
registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the
Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes ý No o
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No ý
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes ý No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer” and “large accelerated filer” in Rule 12b-2 of the Act. (Check
one):
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes o No ý
The
aggregate market value of the units representing assignments of beneficial
ownership of limited partnership interests held by non-affiliates computed by
reference to the price at which such units were last sold on the New York Stock
Exchange as of June 30, 2007 was approximately $7,249,000,000.
The
number of units representing assignments of beneficial ownership of limited
partnership interests outstanding as of January 31, 2008 was
87,251,925. (This figure includes 100,000 units of general
partnership interest having economic interests equivalent to the economic
interests of the units representing assignments of beneficial ownership of
limited partnership interests.)
DOCUMENTS
INCORPORATED BY REFERENCE
This
Form 10-K does not incorporate any document by reference.
TABLE OF CONTENTS
GLOSSARY OF CERTAIN DEFINED TERMS
“AllianceBernstein>” —
AllianceBernstein L.P. (Delaware limited partnership formerly known as Alliance
Capital Management L.P., “Alliance Capital>”), the
operating partnership, and its subsidiaries and, where appropriate, its
predecessors, Holding and ACMC, Inc. and their respective
subsidiaries.
“AllianceBernstein
Investments>”— AllianceBernstein Investments, Inc. (Delaware
corporation), a wholly-owned subsidiary of AllianceBernstein that services
retail clients and distributes company-sponsored mutual funds.
“AllianceBernstein Partnership
Agreement>”— the Amended and Restated Agreement of Limited Partnership of
AllianceBernstein.
“AllianceBernstein Units>”—
units of limited partnership interest in AllianceBernstein.
“AUM” — assets under management
for clients.
“AXA>”— AXA (société anonyme organized
under the laws of France), the holding company for an international group of
insurance and related financial services companies engaged in the financial
protection and wealth management businesses.
“AXA Equitable>”— AXA Equitable
Life Insurance Company (New York stock life insurance company), an indirect
wholly-owned subsidiary of AXA Financial, and its subsidiaries other than
AllianceBernstein and its subsidiaries.
“AXA Financial>”— AXA
Financial, Inc. (Delaware corporation), a wholly-owned subsidiary of
AXA.
“Bernstein GWM>” — Bernstein Global
Wealth Management, a unit of AllianceBernstein that services private
clients.
“Bernstein Transaction>”— on
October 2, 2000, AllianceBernstein’s acquisition of the business and assets of
SCB Inc., formerly known as Sanford C. Bernstein Inc. (“Bernstein”), and
assumption of the liabilities of the Bernstein business.
“Exchange Act”— the Securities
Exchange Act of 1934, as amended.
“ERISA>” — the Employee
Retirement Income Security Act of 1974, as amended.
“General Partner>”—
AllianceBernstein Corporation (Delaware corporation), the general partner of
AllianceBernstein and Holding and a wholly-owned subsidiary of AXA Equitable,
and, where appropriate, ACMC, Inc., its predecessor.
“Holding>” — AllianceBernstein
Holding L.P. (Delaware limited partnership).
“Holding Partnership
Agreement>”— the Amended and Restated Agreement of Limited Partnership of
Holding.
“Holding Units>”— units
representing assignments of beneficial ownership of limited partnership
interests in Holding.
“Investment Advisers Act”— the
Investment Advisers Act of 1940, as amended.
“Investment Company Act”— the
Investment Company Act of 1940, as amended.
“NYSE” — the New York Stock
Exchange, Inc.
“Partnerships”—
AllianceBernstein and Holding together.
“SCB LLC>”— Sanford C. Bernstein
& Co., LLC (Delaware limited liability company), a wholly-owned subsidiary
of AllianceBernstein that provides institutional research services in the United
States.
“SCBL>”— Sanford C. Bernstein
Limited (U.K. company), a wholly-owned subsidiary of AllianceBernstein that
provides institutional research services primarily in Europe.
“SEC”— the United States
Securities and Exchange Commission.
“Securities Act>”— the
Securities Act of 1933, as amended. PART
I
The words
“we” and “our” in this Form 10-K refer collectively to Holding and
AllianceBernstein, or to their officers and employees. Similarly, the word
“company” refers to both Holding and AllianceBernstein. Where the context
requires distinguishing between Holding and AllianceBernstein, we identify which
of them is being discussed. Cross-references are in italics.
We use
“global” in this Form 10-K to refer to all nations, including the United States;
we use “international” or “non-U.S.” to refer to nations other than the United
States.
We use
“emerging markets” in this Form 10-K to refer to countries considered to be
developing countries by the international financial community and countries
included in the MSCI emerging markets index. As of January 31, 2008,
examples of such countries are Argentina, Brazil, Chile, Egypt, India,
Indonesia, Israel, Malaysia, Mexico, the People’s Republic of China, Peru, the
Philippines, Poland, South Africa, South Korea, Taiwan, Thailand, and
Turkey.
We use
the term “hedge funds” in this Form 10-K to refer to private investment
partnerships we sponsor that invest in various alternative strategies such as
leverage, short selling of securities and utilizing forward contracts, currency
options and other derivatives.
General
Clients
AllianceBernstein
provides research, diversified investment management and related services
globally to a broad range of clients, including:
We also
provide distribution, shareholder servicing, and administrative services to our
sponsored mutual funds.
Our
primary objective is to have more investment knowledge and to use it better than
our competitors to help our clients achieve their investment goals and financial
peace of mind.
Research
Our
high-quality, in-depth, fundamental research is the foundation of our business.
We believe that our global team of research professionals gives us a competitive
advantage in achieving investment success for our clients.
Our
research disciplines include fundamental research, quantitative research,
economic research, and currency forecasting capabilities. In addition, we have
created several specialized research units, including one unit that examines
global strategic changes that can affect multiple industries and geographies,
and another dedicated to identifying potentially successful innovations within
early-stage companies.
Products
and Services
We offer
a broad range of investment products and services to our clients:
These
services are provided by a group of investment professionals with significant
expertise in their respective disciplines. As of December 31, 2007, our 304
buy-side research analysts, located around the world, supported our 180
portfolio managers. Our portfolio managers have an average of 20 years of experience
in the industry and 10 years of experience with AllianceBernstein. Together,
they oversee a number of different types of investment services within various
vehicles and strategies discussed above. As of December 31, 2007, our
60 sell-side research analysts provided the foundation for our Institutional
Research Services.
Our
services include:
We manage
these services using various investment disciplines, including market
capitalization (e.g., large-, mid-, and small-cap equities), term (e.g., long-,
intermediate-, and short-duration debt securities), and geographic location
(e.g., U.S., international, global, and emerging markets), as well as local and
regional disciplines in major markets around the world.
Blend
strategies are an increasingly important component of our product line. As of
December 31, 2007, blend AUM was $175 billion (representing 22% of our
company-wide AUM), an increase of 30% from $134 billion as of December 31, 2006
and 99% from $88 billion as of December 31, 2005.
We market
and distribute our hedge funds globally to high-net-worth clients and, more
recently, to institutional investors. Hedge fund AUM totaled $9.5 billion as of
December 31, 2007, $7.5 billion of which was private client AUM and $2.0 billion of which was
institutional AUM. Our hedge fund AUM constitutes only a small
portion of our company-wide AUM, but can have a disproportionately large effect
on our revenues because of the performance-based fees we are eligible to
earn. For additional information about these fees, see “Revenues” in this Item 1, “Risk
Factors” in Item 1A, and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in Item
7.
Sub-advisory
client mandates span our investment strategies, including growth, value, fixed
income, and blend. We serve as sub-adviser for retail mutual funds, insurance
products, retirement platforms, and institutional investment
products. Global
Reach
We serve
clients in major global markets through operations in 48 cities in 25 countries. Our client
base includes investors throughout the Americas, Europe, Asia, Africa, and
Australia. We utilize an integrated global investment platform that provides our
clients with access to local (country-specific), international, and global
research and investment strategies.
Assets
under management by client domicile and investment service as of December 31,
2007, 2006, and 2005 were as follows:
As the
above charts indicate, our business continues to become increasingly global. Our
international client base increased by 23% during 2007 and 44% during 2006 and,
likewise, our global and international AUM increased by 27% during 2007 and 50%
during 2006. In addition, approximately 80%, 76%, and 69% of our gross asset
inflows (sales / new accounts) during 2007, 2006, and 2005, respectively, were
invested in global and international investment services.
Revenues
We earn
revenues primarily by charging fees for managing the investment assets of, and
providing research to, our clients.
We
generally calculate investment advisory fees as a percentage of the value of AUM
at a specific point in time or as a percentage of the value of average AUM for
the applicable billing period, with these fees varying by type of investment
service, size of account, and total amount of assets we manage for a particular
client. Accordingly, fee income generally increases or decreases as AUM
increases or decreases. Increases in AUM generally result from market
appreciation, positive investment performance for clients, or net asset inflows
from new and existing clients. Similarly, decreases in AUM generally result from
market depreciation, negative investment performance for clients, or net asset
outflows due to client redemptions, account terminations, or asset
withdrawals.
We are
eligible to earn performance-based fees on hedge fund services, as well as some
Institutional Investment Services. In these situations, we charge a base
advisory fee and are eligible to earn an additional performance-based fee or
incentive allocation that is calculated as either a percentage of absolute
investment results or a percentage of investment results in excess of a stated
benchmark over a specified period of time. In addition, many performance-based
fees include a high-watermark provision, which generally provides that if a
client account underperforms relative to its performance target (whether
absolute or relative to a specified benchmark), it must gain back such
underperformance before we can collect future performance-based
fees. Therefore, if we do not exceed our performance target for a
particular period, we will not earn a performance-based fee for that period and,
for accounts with a high-watermark provision, we will impair our ability to earn
future performance-based fees. Because the portion of our AUM on which we are
eligible to earn performance-based fees has increased, the seasonality and
volatility of our revenues and earnings have become more
significant. Our performance-based fees in 2007 were $81.2 million,
in 2006 were $235.7 million, and in 2005 were $131.9 million. For
additional information about performance-based fees, see “Risk Factors” in Item 1A
and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in
Item 7. We
sometimes experience periods when the number of new accounts or the amount of
AUM increases or decreases significantly. These shifts result from wide-ranging
factors, including conditions of financial markets, our investment performance
for clients, and changes in our clients’ investment preferences.
We earn
revenues from clients to whom we provide fundamental research and
brokerage-related services generally in the form of transaction fees calculated
as either “cents per share” or a percentage of the value of the securities
traded for these clients.
Our
revenues may fluctuate for a number of reasons; see “Risk Factors” in Item 1A
and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in
Item 7.
Employees
As of
December 31, 2007, we had 5,580 full-time employees located in 25 countries,
including 364 research analysts, 180 portfolio managers, 42 traders, and 31
professionals with other investment-related responsibilities. We have employed
these professionals for an average period of approximately seven years, and
their average investment experience is approximately 16 years. We consider our
employee relations to be good.
Institutional
Investment Services
We serve
our institutional clients primarily through AllianceBernstein Institutional
Investments, a unit of AllianceBernstein, and through other units in our
international subsidiaries and one of our joint ventures (institutional
relationships of less than $25 million are generally serviced by Bernstein GWM,
our Private Client channel). Institutional Investment Services include actively
managed equity accounts (including growth, value, and blend accounts), fixed
income accounts, and balanced accounts (which combine equity and fixed income),
as well as passive management of index and enhanced index accounts. These
services are provided through separately managed accounts, sub-advisory
relationships, structured products, collective investment trusts, mutual funds,
and other investment vehicles. As of December 31, 2007, institutional AUM was
$508 billion, or 63% of our company-wide AUM. For more information concerning
institutional AUM, revenues, and fees, see “Assets Under Management,
Revenues, and Fees” in this Item 1.
Our
institutional client base includes unaffiliated corporate and public employee
pension funds, endowment funds, domestic and foreign institutions and
governments, and certain of our affiliates (AXA and its subsidiaries), as well
as certain sub-advisory relationships with unaffiliated sponsors of various
other investment products. We manage approximately 2,448 mandates for these
clients, which are located in 45 countries. As of December 31, 2007, we managed
employee benefit plan assets for 57 of the Fortune 100
companies, and we managed public pension fund assets for 37 states and/or
municipalities in those states.
Like our
business generally, our Institutional Investment Services are becoming
increasingly global. As of December 31, 2007, our institutional AUM invested in
global and international investment services was $341 billion, or 67% of
institutional AUM, as compared to $270 billion, or 59% of institutional AUM, as
of December 31, 2006, and $172 billion, or 48% of institutional AUM, as of
December 31, 2005. Similarly, as of December 31, 2007, the AUM we invested for
clients domiciled outside the United States was $269 billion, or 53% of
institutional AUM, as compared to $214 billion, or 47% of institutional AUM, as
of December 31, 2006, and $138 billion, or 38% of institutional AUM, as of
December 31, 2005.
Retail Services
We
provide investment management and related services to a wide variety of
individual retail investors, both in the U.S. and internationally, through
retail mutual funds sponsored by our company, our subsidiaries and affiliated
joint venture companies; mutual fund sub-advisory relationships; Separately
Managed Account Programs; and other investment vehicles (“Retail Products and
Services”). As of December 31, 2007, retail AUM, which is determined by
subtracting applicable liabilities from AUM, was $183 billion, or 23% of our
company-wide AUM. For more information concerning retail AUM, revenues, and
fees, see “Assets Under
Management, Revenues, and Fees” in this Item 1.
Our
Retail Products and Services are designed to provide disciplined, research-based
investments that contribute to a well-diversified investment portfolio. We
distribute these products and services through financial intermediaries,
including broker-dealers, insurance sales representatives, banks, registered
investment advisers, and financial planners.
Our
Retail Products and Services are becoming increasingly global. As of December
31, 2007, our retail AUM invested in global and international investment
services was $110 billion, or 60% of retail AUM, as compared to $86 billion, or
52% of retail AUM, as of December 31, 2006, and $65 billion, or 45% of retail
AUM, as of December 31, 2005. As of December 31, 2007, the AUM we invested for
clients domiciled outside the U.S. was $44 billion, or 24% of retail AUM, as
compared to $40 billion, or 24% of retail AUM, as of December 31, 2006, and $39
billion, or 27% of retail AUM, as of December 31, 2005.
Our
Retail Products and Services include open-end and closed-end funds that are
either (i) registered as investment companies under the Investment Company Act
(“U.S. Funds”), or (ii) not registered under the Investment Company Act and
generally not offered to United States persons (“Non-U.S. Funds” and
collectively with the U.S. Funds, “AllianceBernstein Funds”). They provide a
broad range of investment options, including local and global growth equities,
value equities, blend strategies, and fixed income securities. They also include
Separately Managed Account Programs, which are sponsored by financial
intermediaries and generally charge an all-inclusive fee covering investment
management, trade execution, asset allocation, and custodial and administrative
services. We also provide distribution, shareholder servicing, and
administrative services for our Retail Products and Services. Our U.S.
Funds, which include retail funds, our variable products series fund (a
component of an insurance product), and the Sanford C. Bernstein Funds
(principally Private Client Services products), currently offer 120 different
portfolios to U.S. investors. As of December 31, 2007, retail U.S. Funds AUM was
approximately $66 billion, or 36% of total retail AUM. Because of the way they
are marketed and serviced, we report substantially all of the AUM in the Sanford
C. Bernstein Funds (“SCB Funds”), which totaled $32 billion as of December 31,
2007, as private client AUM.
We offer
the following Retail Products and Services to clients domiciled outside the
United States:
AllianceBernstein
Investments serves as the principal underwriter and distributor of the U.S.
Funds. AllianceBernstein Investments employs approximately 160 sales
representatives who devote their time exclusively to promoting the sale of U.S.
Funds and certain other Retail Products and Services by financial
intermediaries.
AllianceBernstein
(Luxembourg) S.A. (“AllianceBernstein Luxembourg”), a Luxembourg management
company and one of our wholly-owned subsidiaries, generally serves as the
placing or distribution agent for the Non-U.S. Funds. AllianceBernstein
Luxembourg employs approximately 21 sales representatives who devote their time
exclusively to promoting the sale of Non-U.S. Funds and other Retail Products
and Services by financial intermediaries.
Cash
Management Services
During
June 2005, Federated Investors, Inc. (“Federated”) acquired our retail cash
management services. For additional information, see Note 22 to AllianceBernstein’s
consolidated financial statements in Item 8.
Private Client Services
Bernstein
GWM combines the former private client services group of Bernstein, which has
served private clients for approximately 40 years, and the former private client
group of Alliance Capital. As of December 31, 2007, private client AUM was $109
billion, or 14% of our company-wide AUM. For more information concerning private
client AUM, revenues, and fees, see “Assets Under Management,
Revenues, and Fees” in this Item 1.
Through
Bernstein GWM, we provide Private Client Services to high-net-worth individuals,
trusts and estates, charitable foundations, partnerships, private and family
corporations, and other entities by means of separately managed accounts, hedge
funds, mutual funds, and other investment vehicles. We target investors with
financial assets of $1 million or more, although we have a minimum opening
account size of $500,000.
Our
Private Client Services are built on a sales effort that involves 338 financial advisors.
These advisors do not manage money, but work with private clients and their tax,
legal, and other advisors to assist clients in determining a suitable mix of
U.S. and non-U.S. equity securities and fixed income investments. The
diversified portfolio created for each client is intended to maximize after-tax
investment returns, in light of the client’s individual investment goals, income
requirements, risk tolerance, tax situation, and other relevant factors. In
creating these portfolios, we utilize all of our resources, including research
reports, investment planning services, and our Wealth Management Group, which
has in-depth knowledge of trust, estate, and tax planning
strategies.
Our
financial advisors are based in 18 cities in the U.S.:
New York City, Atlanta, Boston, Chicago, Cleveland, Dallas, Denver, Houston, Los
Angeles, Miami, Minneapolis, Philadelphia, San Diego, San Francisco, Seattle,
Tampa, Washington, D.C., and West Palm Beach. We also have financial advisors
based in London, England. We added 40 financial advisors in 2007, a 13% increase
from 2006; however, we anticipate that growth in the number of financial
advisors will slow in 2008. Non-U.S.
investment services have become increasingly important in the private client
channel. As of December 31, 2007, our private client AUM invested in global and
international investment services was $38 billion, or 35% of private client AUM,
as compared to $29 billion, or 30% of private client AUM, as of December 31,
2006, and $20 billion, or 26% of private client AUM, as of December 31,
2005.
Institutional Research Services
Institutional
Research Services (“IRS”) consist of independent research, portfolio strategy,
and brokerage-related services provided to institutional investors such as
pension fund, hedge fund, and mutual fund managers, and other institutional
investors. Brokerage-related services are provided by SCB LLC in the United
States and SCBL primarily in Europe. As of December 31, 2007, SCB LLC and SCBL
(together, “SCB”) served approximately 1,350 clients in the U.S. and
approximately 460 clients outside the U.S. For more information concerning the
revenues we derive from IRS, see “Assets Under Management,
Revenues, and Fees” in this Item 1.
SCB
provides fundamental company and industry research along with disciplined
research into securities valuation and factors affecting stock-price movements.
Our analysts are consistently among the highest ranked research analysts in
industry surveys conducted by third-party organizations. Along with quantitative
analysts and portfolio strategists, our IRS research team totals approximately
175 people, including 55 senior analysts.
In 2007,
SCBL launched its European equity program and algorithmic trading capabilities
in London, where SCBL employs 16 published analysts covering industries and
companies in Europe. These product additions complement similar programs rolled
out in the U.S. in 2005 and 2006. Assets Under Management, Revenues, and Fees
The
following tables summarize our AUM and revenues by distribution
channel:
Assets
Under Management(1)
Revenues
AXA
Financial, AXA Equitable, and our other affiliates, whose AUM consists primarily
of fixed income investments, together constitute our largest client. Our
affiliates represented approximately 15%, 17%, and 19% of our company-wide AUM
as of December 31, 2007, 2006, and 2005, respectively. We also earned
approximately 5% of our company-wide net revenues from our affiliates for each
of 2007, 2006, and 2005. We manage this AUM as part of our Institutional
Investment Services and our Retail Services.
Institutional
Investment Services
The
following tables summarize our Institutional Investment Services AUM and
revenues:
Institutional
Investment Services Assets Under Management(1)
(by
Investment Service)
Revenues
From Institutional Investment Services
(by
Investment Service)
As of
December 31, 2007, 2006, and 2005, Institutional Investment Services represented
approximately 63%, 63%, and 62%, respectively, of our company-wide AUM. The fees
we earned from these services represented approximately 33%, 31%, and 28% of our
company-wide net revenues for 2007, 2006, and 2005, respectively.
We manage
assets for AXA and its subsidiaries, which together constitute our largest
institutional client. These assets accounted for approximately 16%, 17%, and 18%
of our total institutional AUM as of December 31, 2007, 2006, and 2005,
respectively, and approximately 7%, 7%, and 8% of our total institutional
revenues for 2007, 2006, and 2005, respectively.
The
institutional AUM we manage for our affiliates, along with our nine other
largest institutional accounts, accounts for approximately 28% of our total
institutional AUM as of December 31, 2007 and approximately 17% of our total
institutional revenues for the year ended December 31, 2007. No single
institutional client other than AXA and its subsidiaries accounted for more than
approximately 1% of our company-wide net revenues for the year ended December
31, 2007.
We manage
the assets of our institutional clients through written investment management
agreements or other arrangements, all of which are generally terminable at any
time or upon relatively short notice by either party. In general, our written
investment management agreements may not be assigned without client
consent.
We are
compensated principally on the basis of investment advisory fees calculated as a
percentage of assets under management. The percentage we charge varies with the
type of investment service, the size of the account, and the total amount of
assets we manage for a particular client.
We are
eligible to earn performance-based fees on approximately 16% of institutional
assets under management, which are primarily invested in equity and fixed income
services rather than hedge funds. Performance-based fees provide for a
relatively low asset-based fee plus an additional fee based on investment
performance. For additional information about performance-based fees,
see “General - Revenues” in
this Item 1 and “Risk
Factors” in Item
1A.
Retail
Services
The
following tables summarize our Retail Services AUM and revenues:
Retail
Services Assets Under Management
(by
Investment Service)
Revenues
From Retail Services
(by
Investment Service)
Investment
advisory fees and distribution fees for our Retail Products and Services are
generally charged as a percentage of average daily AUM. As certain of the U.S.
Funds have grown, we have revised our fee schedules to provide lower incremental
fees above certain asset levels. Fees paid by the U.S. Funds, EQ Advisors Trust
(“EQAT”), AXA Enterprise Multimanager Funds Trust (“AXA Enterprise Trust”), and
AXA Premier VIP Trust are reflected in the applicable investment management
agreement, which generally must be approved annually by the boards of directors
or trustees of those funds, including by a majority of the independent directors
or trustees. Increases in these fees must be approved by fund shareholders;
decreases need not be, including any decreases implemented by a fund’s directors
and trustees. In general, each investment management agreement with
the AllianceBernstein Funds, EQAT, AXA Enterprise Trust, and AXA Premier VIP
Trust provides for termination by either party at any time upon 60
days’ notice.
Fees paid
by Non-U.S. Funds are reflected in investment management agreements that
continue until they are terminated. Increases in these fees must generally be
approved by the relevant regulatory authority depending on the domicile and
structure of the fund, and Non-U.S. Fund shareholders must be given advance
notice of any fee increases.
Our
Retail Products and Services include variable products, which are open-end
mutual funds designed to fund benefits under variable annuity contracts and
variable life insurance policies offered by life insurance companies (“Variable
Products”). We manage the AllianceBernstein Variable Products Series Fund, Inc.,
which serves as the investment vehicle for insurance products offered by
unaffiliated insurance companies, and we sub-advise variable product mutual
funds sponsored by affiliates. As of December 31, 2007, we managed or
sub-advised approximately $59 billion of Variable Product AUM.
The
mutual funds we sub-advise for various affiliates together constitute our
largest retail client. They accounted for approximately 22%, 24%, and 29% of our
total retail AUM as of December 31, 2007, 2006, and 2005, respectively, and
approximately 7%, 7%, and 8% of our total retail revenues for 2007, 2006 and
2005, respectively. Our
mutual fund distribution system (the “System”) includes a multi-class share
structure that permits open-end AllianceBernstein Funds to offer investors
various options for the purchase of mutual fund shares, including both front-end
load shares and back-end load shares. For front-end load shares,
AllianceBernstein Investments pays sales commissions to financial intermediaries
distributing the funds from the front-end sales charge it receives from
investors at the time of the sale. For back-end load shares, AllianceBernstein
Investments pays sales commissions to financial intermediaries at the time of
sale and also receives higher ongoing distribution services fees from the mutual
funds. In addition, investors who redeem back-end load shares before the
expiration of the minimum holding period (which ranges from one year to four
years) pay a contingent deferred sales charge (“CDSC”) to AllianceBernstein
Investments. We expect to recover deferred sales commissions over periods not
exceeding five and one-half years through receipt of a CDSC and/or the higher
ongoing distribution services fees we receive from holders of back-end load
shares. Payments of sales commissions made to financial intermediaries in
connection with the sale of back-end load shares under the System, net of CDSC
received of $31.1 million, $23.7 million, and $21.4 million, totaled
approximately $84.1 million, $98.7 million, and $74.2 million during 2007, 2006,
and 2005, respectively.
The rules
of the Financial Industry Regulatory Authority, Inc. (“FINRA”), the successor to
the National Association of Securities Dealers, Inc., effectively cap the
aggregate sales charges that may be received from each U.S. Fund by
AllianceBernstein Investments. The cap is 6.25% of cumulative gross sales (plus
interest at the prime rate plus 1% per annum) in each share class of the
open-end U.S. Funds.
Most
open-end U.S. Funds have adopted a plan under Rule 12b-1 of the Investment
Company Act that allows the fund to pay, out of assets of the fund, distribution
and service fees for the distribution and sale of its shares (“Rule 12b-1
Fees”). The open-end AllianceBernstein Funds have entered into agreements with
AllianceBernstein Investments under which they pay a distribution services fee
to AllianceBernstein Investments. AllianceBernstein Investments has entered into
selling and distribution agreements pursuant to which it pays sales commissions
to the financial intermediaries that distribute our open-end U.S. Funds. These
agreements are terminable by either party upon notice (generally not more than
60 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
AllianceBernstein Investments, in which case AllianceBernstein Investments
retains the entire sales charge.
In
addition to Rule 12b-1 Fees, AllianceBernstein Investments, at its own expense,
currently provides additional payments under distribution services and
educational support agreements to firms that sell shares of our funds, a
practice sometimes referred to as revenue sharing. Although the amount of
payments made to each qualifying firm in any given year may vary, the total
amount paid to a financial intermediary in connection with the sale of shares of
U.S. Funds will generally not exceed the sum of (i) 0.25% of the current year’s
fund sales by that firm, and (ii) 0.10% of average daily net assets attributable
to that firm over the course of the year. These sums may be associated with our
funds’ status on a financial intermediary’s preferred list of funds or may be
otherwise associated with the financial intermediary’s marketing and other
support activities, such as client education meetings and training efforts
relating to our funds.
Financial
intermediaries and record keepers that provide sub-transfer agency or accounting
services with respect to their customers’ investments in AllianceBernstein Funds
may receive specified payments from these funds or from affiliates of
AllianceBernstein, including AllianceBernstein Investor Services, Inc. (one of
our wholly-owned subsidiaries, “AllianceBernstein Investor Services”) and
AllianceBernstein Investments.
During
2007, the 10 financial intermediaries responsible for the largest volume of
sales of open-end AllianceBernstein Funds were responsible for 38% of such
sales. AXA Advisors, LLC (“AXA Advisors”), a wholly-owned subsidiary of AXA
Financial that utilizes members of AXA Equitable’s insurance sales force as its
registered representatives, was responsible for approximately 2%, 2%, and 3% of
total sales of shares of open-end AllianceBernstein Funds in 2007, 2006, and
2005, respectively. AXA Advisors is under no obligation to sell a specific
amount of AllianceBernstein Fund shares and also sells shares of mutual funds
sponsored by other affiliates and unaffiliated organizations.
Merrill
Lynch & Co., Inc. (and its subsidiaries, “Merrill Lynch”) was
responsible for approximately 7%, 6%, and 5% of open-end AllianceBernstein Fund
sales in 2007, 2006, and 2005, respectively. Citigroup Inc. (and its
subsidiaries, “Citigroup”) was responsible for approximately 7% of open-end
AllianceBernstein Fund sales in 2007 and 5% in each of 2006 and 2005. Neither
Merrill Lynch nor Citigroup is under any obligation to sell a specific
amount of AllianceBernstein Fund shares and each also sells shares of mutual
funds that it sponsors and that are sponsored by unaffiliated
organizations.
No dealer
or agent has in any of the last three years accounted for more than 10% of total
sales of shares of our open-end AllianceBernstein Funds.
Based on
industry sales data reported by the Investment Company Institute, our market
share in the U.S. mutual fund industry is 1.2% of total industry assets and we
accounted for 1.0% of total open-end industry sales (and 3.4% of non-proprietary
manager sales) in the U.S. during 2007. The investment performance of the U.S.
Funds is an important factor in the sale of their shares, but there are also
other factors, including the level and quality of shareholder services (see below) and the amounts
and types of distribution assistance and administrative services payments made
to financial intermediaries. We believe that our compensation programs with
financial intermediaries are competitive with others in the
industry.
Each of
the U.S. Funds appointed an independent compliance officer reporting to the
board of directors of each U.S. Fund. The expense of this officer and his staff
is borne by AllianceBernstein. AllianceBernstein
Investor Services provides transfer agency and related services for each
open-end U.S. Fund and provides shareholder servicing for each open-end U.S.
Fund’s shareholder accounts (approximately 4.1 million accounts in total).
(Transfer agency and related services are provided to the SCB Funds primarily by
Boston Financial Data Services.) As of December 31, 2007, AllianceBernstein
Investor Services employed 258 people. AllianceBernstein Investor Services
operates in San Antonio, Texas, and it receives a monthly fee under each of its
servicing agreements with the open-end U.S. Funds based on the number and type
of shareholder accounts serviced. Each servicing agreement must be approved
annually by the relevant open-end U.S. Fund’s board of directors or trustees,
including a majority of the independent directors or trustees, and may be
terminated by either party without penalty upon 60 days’ notice.
AllianceBernstein
Funds utilize our personnel to perform most legal, clerical, and accounting
services. Payments to us by the U.S. Funds and certain Non-U.S. Funds for these
services must be specifically approved in advance by each fund’s board of
directors or trustees. Currently, AllianceBernstein Investor Services record
revenues for providing these services to the AllianceBernstein Funds at the rate
of approximately $7.0 million per year.
A unit of
AllianceBernstein Luxembourg (“ABIS Lux”) is the transfer agent for
substantially all of the Non-U.S. Funds. As of December 31, 2007, ABIS Lux
employed 77 people. ABIS Lux operates in Luxembourg (and is supported by
operations in Singapore, Hong Kong, and the United States) and receives a
monthly fee for its transfer agency services and a transaction-based fee under
various services agreements with the Non-U.S. Funds for which it provides these
services. Each agreement may be terminated by either party upon 60
days’ notice.
Private
Client Services
The
following tables summarize Private Client Services AUM and
revenues:
Private
Client Services Assets Under Management
(by
Investment Service)
Revenues
From Private Client Services
(by
Investment Service)
Private
client accounts are managed pursuant to a written investment advisory agreement
generally among the client, AllianceBernstein and SCB LLC (sometimes between the
client and AllianceBernstein Limited, a wholly-owned subsidiary of ours
organized in the U.K.), which usually is terminable at any time or upon
relatively short notice by any party. In general, these contracts may not be
assigned without the consent of the client. We are compensated under these
contracts by fees calculated as a percentage of AUM at a specific point in time
or as a percentage of the value of average assets under management for the
applicable billing period, with these fees varying based on the type of
portfolio and the size of the account. The aggregate fees we charge for managing
hedge funds may be higher than the fees we charge for managing other assets in
private client accounts because hedge fund fees provide for performance-based
fees, incentive allocations, or carried interests in addition to asset-based
fees. We are eligible to earn performance-based fees on approximately 8% of
private client AUM, substantially all of which is held in hedge
funds.
We
eliminated transaction charges during 2005 on U.S. equity services for most
private clients as part of a management initiative that changed the structure of
investment advisory and services fees charged for our services. The
restructuring eliminated transaction charges for trade execution performed by
SCB LLC for most private clients; the transaction charges were replaced by
higher asset-based fees. This fee structure provides greater transparency and
predictability of asset management costs for our private clients. (The
elimination of transaction charges was not the result of the New York State
Attorney General’s Assurance of Discontinuance dated September 1, 2004 (“NYAG
AoD”) or an agreement with any other regulator; see “Governance” in this Item
1 for additional information.)
Revenues
from Private Client Services represented approximately 21%, 22%, and 21% of our
company-wide net revenues for the years ended December 31, 2007, 2006, and 2005,
respectively. Institutional
Research Services
The
following table summarizes Institutional Research Services
revenues:
Revenues
From Institutional Research Services
We earn
revenues for providing investment research to, and executing brokerage
transactions for, institutional clients. These clients compensate us principally
by directing SCB to execute brokerage transactions, for which we earn
transaction charges. These services accounted for approximately 9%, 9%, and 11%
of our company-wide net revenues for the years ended December 31, 2007, 2006,
and 2005, respectively.
Fee rates
charged for brokerage transactions have declined significantly in recent years,
but increases in transaction volume in both the U.S. and Europe have more than
offset these decreases. For additional information, see “Risk Factors” in Item 1A and
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in Item 7.
Custody
and Brokerage
Custody
SCB LLC
acts as custodian for the majority of AllianceBernstein’s
private client AUM and some of AllianceBernstein’s institutional AUM. Other
custodial arrangements are maintained by client-designated banks, trust
companies, brokerage firms or other custodians.
Brokerage
We
generally have the discretion to select the broker-dealers that execute
securities transactions for client accounts. When selecting brokers, we are
required to obtain “best execution”. Although there is no single statutory
definition, SEC releases and other legal guidelines make clear that the duty to
obtain best execution requires us to seek “the most advantageous terms
reasonably available under the circumstances for a customer’s account”. In
addition to commission rate, we take into account such factors as current market
conditions, the broker’s financial strength, and the ability and willingness of
the broker to commit capital by taking positions in order to execute
transactions.
While we
select brokers primarily on the basis of their execution capabilities, we may
also take into consideration the quality and amount of research services a
broker provides to us for the benefit of our clients. These research services,
which are paid for with client commissions and which we purchase to augment our
own research capabilities, are governed by Section 28(e) of the Exchange Act. We
use broker-dealers that provide these services in consideration for commissions
paid for the execution of client trades, subject at all times to our duty to
seek best execution, and with respect to which we reasonably conclude, in good
faith, that the value of the execution and other services we receive from the
broker-dealer is reasonable in relation to the amount of commissions paid. The
commissions charged by these full-service brokers are generally higher than
those charged by electronic trading networks and other “low-touch” trading
venues.
We
sometimes execute client transactions through SCB LLC or SCBL, our affiliated
broker-dealers. We do so only when our clients have consented to our use of
affiliated broker-dealers or we are otherwise permitted to do so, and only when
we can execute these transactions in accordance with applicable law (i.e., our
obligation to obtain best execution). In 2007, we executed approximately $3.3
million in transactions through SCB. We may use brokers to effect client
transactions that sell shares of AllianceBernstein Funds or third party funds we
sub-advise; however, we prohibit our investment professionals who place trades
from considering these other relationships or the sale of fund shares as a
factor when selecting brokers to effect transactions.
Our
Brokerage Allocation Committee has principal oversight responsibility for
evaluating equity-related brokerage matters, including how to use research
services we receive in a manner that is in the best interests of our clients and
consistent with current regulatory requirements. Service Marks
In
connection with our name changes to AllianceBernstein L.P. and AllianceBernstein
Holding L.P. in February 2006, we have registered a number of service marks with
the U.S. Patent and Trademark Office and various foreign patent offices,
including an “AB” design logo and the combination of such logo with the mark
“AllianceBernstein”.
In
connection with the Bernstein Transaction, we acquired all of the rights and
title in, and to, the Bernstein service marks, including the mark
“Bernstein”.
Governance
We
maintain a robust fiduciary culture and, as a fiduciary, we place the interests
of our clients first and foremost. We are committed to the fair and equitable
treatment of all our clients, and to compliance with all applicable
rules and regulations and internal policies to which our business is subject. We
pursue these goals through education of our employees to promote awareness of
our fiduciary obligations, incentives that align employees’ interests with those
of our clients, and a range of measures, including active monitoring, to ensure
regulatory compliance. Specific steps we have taken to help us achieve these
goals include:
We
implemented these measures, in part, pursuant to the Order of the Commission
(“SEC Order”) dated December 18, 2003 (amended and restated January 15, 2004)
and the NYAG AoD (together with the SEC Order, “Orders”), which related to
trading practices in the shares of certain of our sponsored mutual
funds. In addition, the Orders required:
We
believe that our remedial actions provide reasonable assurance that the
deficiencies in our internal controls related to market timing will not occur
again.
With the
approval of the independent directors of the U.S. Fund Boards and the staff of
the SEC, we retained an Independent Distribution Consultant (“IDC”) to develop a
plan for the distribution of the Restitution Fund. To the extent it is
determined by the IDC and the SEC that the harm to mutual fund shareholders
caused by market timing exceeds $200 million, we will be required to contribute
additional monies to the Restitution Fund. In September 2005, the IDC submitted
to the SEC Staff the portion of his report concerning his methodology for
determining damages and a proposed distribution plan, which addresses the
mechanics of distribution; in February 2006, the final portion of his report was
submitted. The Restitution Fund proceeds will not be distributed
until after the SEC has issued an order approving the distribution plan. Until
then, it is not possible to predict the exact timing, method, or amount of the
distribution.
Regulation
Virtually
all aspects of our business are subject to federal and state laws and
regulations, rules of securities regulators and exchanges, and laws in the
foreign countries in which our subsidiaries conduct business.
AllianceBernstein,
Holding, the General Partner, SCB LLC, AllianceBernstein Global Derivatives
Corporation (a wholly-owned subsidiary of AllianceBernstein, “Global
Derivatives”), and Alliance Corporate Finance Group Incorporated (a wholly-owned
subsidiary of AllianceBernstein) are investment advisers registered under the
Investment Advisers Act. SCB LLC and Global Derivatives are also registered with
the Commodity Futures Trading Commission as commodity pool
operators. Each U.S.
Fund is registered with the SEC under the Investment Company Act and the shares
of most U.S. Funds are qualified for sale in all states in the United States and
the District of Columbia, except for U.S. Funds offered only to residents of a
particular state. AllianceBernstein Investor Services is registered with the SEC
as a transfer agent.
SCB LLC
and AllianceBernstein Investments are registered with the SEC as broker-dealers,
and both are members of FINRA. SCB LLC is also a member of the NYSE and all
other principal U.S. exchanges. SCBL is a broker regulated by the Financial
Services Authority of the United Kingdom (“FSA”) and is a member of the London
Stock Exchange.
AllianceBernstein
Trust Company, LLC (“ABTC”), a wholly-owned subsidiary of AllianceBernstein, is
a non-depository trust company chartered under New Hampshire law as a limited
liability company. ABTC is authorized to act as trustee, executor, transfer
agent, assignee, receiver, custodian, investment adviser, and in any other
capacity authorized for a trust company under New Hampshire law. As a
state-chartered trust company exercising fiduciary powers, ABTC must comply with
New Hampshire laws applicable to trust company operations (such as New Hampshire
Revised Statutes Annotated Part 392), certain federal laws (such as ERISA and
sections of the Bank Secrecy Act), and the New Hampshire banking laws. The
primary fiduciary activities of ABTC consist of serving as trustee to a series
of collective investment trusts, the investors of which currently are defined
benefit and defined contribution retirement plans.
Many of
our subsidiaries around the world are subject to minimum net capital
requirements by the local laws and regulations to which they are
subject. As of December 31, 2007, each of our subsidiaries subject to
a minimum net capital requirement satisfied the applicable
requirement.
Holding
Units trade publicly on the NYSE under the ticker symbol “AB”. Holding is an
NYSE listed company and, therefore, is subject to the applicable regulations
promulgated by the NYSE.
Our
relationships with AXA and its subsidiaries are subject to applicable provisions
of the insurance laws and regulations of New York and other states. Under such
laws and regulations, the terms of certain investment advisory and other
agreements we enter into with AXA or its subsidiaries are required to be fair
and equitable, charges or fees for services performed must be reasonable, and,
in some cases, are subject to regulatory approval.
All
aspects of our business are subject to various federal and state laws and
regulations, rules of various securities regulators and exchanges, and laws in
the foreign countries in which our subsidiaries and joint ventures 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 that 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 or broker-dealer,
censures, and fines.
Some of
our subsidiaries are subject to the oversight of regulatory authorities in
Europe, including the FSA in the U.K., and in Asia, including the Financial
Services Agency in Japan, the Securities and Futures Commission in Hong Kong and
the Monetary Authority of Singapore. While the requirements of these foreign
regulators are often comparable to the requirements of the SEC and other U.S.
regulators, they are sometimes more restrictive and may cause us to incur
substantial expenditures of time and money in our efforts to
comply.
Taxes
Holding,
having elected under Section 7704(g) of the Internal Revenue Code of 1986, as
amended (“Code”), to be subject to a 3.5% federal tax on partnership gross
income from the active conduct of a trade or business, is a “grandfathered”
publicly-traded partnership for federal income tax purposes. Holding
is also subject to the 4.0% New York City unincorporated business tax (“UBT”),
net of credits for UBT paid by AllianceBernstein. In order to preserve Holding’s
status as a “grandfathered” publicly-traded partnership for federal income tax
purposes, management ensures that Holding does not directly or indirectly
(through AllianceBernstein) enter into a substantial new line of business. A
“new line of business” would be any business that is not closely related to
AllianceBernstein’s historical business of providing research and diversified
investment management and related services to its clients. A new line of
business is “substantial” when a partnership derives more than 15% of its gross
income from, or uses more than 15% (by value) of its total assets in, the new
line of business.
AllianceBernstein
is a private partnership for federal income tax purposes and, accordingly, is
not subject to federal and state corporate income taxes. However,
AllianceBernstein is subject to the 4.0% UBT. Domestic corporate subsidiaries of
AllianceBernstein, which are subject to federal, state and local income taxes,
are generally included in the filing of a consolidated federal income tax return
with separate state and local income tax returns being filed. Foreign corporate
subsidiaries are generally subject to taxes at higher rates in the foreign
jurisdiction where they are located so, as our business increasingly operates in
countries other than the U.S., our effective tax rate continues to
increase.
For
additional information, see
“Risk Factors” in Item 1A. History and Structure
We have
been in the investment research and management business for more than 35 years.
Alliance Capital was founded in 1971 when the investment management department
of Donaldson, Lufkin & Jenrette, Inc. (since November 2000, a part of Credit
Suisse Group) merged with the investment advisory business of Moody’s Investor
Services, Inc. Bernstein was founded in 1967.
In April
1988, Holding “went public” as a master limited partnership. Holding Units,
which trade under the ticker symbol “AB”, have been listed on the NYSE since
that time.
In
October 1999, Holding reorganized by transferring its business and assets to
AllianceBernstein, a newly-formed operating partnership, in exchange for all of
the AllianceBernstein Units (“Reorganization”). Since the date of the
Reorganization, AllianceBernstein has conducted the business formerly conducted
by Holding and Holding’s activities have consisted of owning AllianceBernstein
Units and engaging in related activities. As stated above, Holding Units trade
publicly; AllianceBernstein Units do not trade publicly and are subject to
significant restrictions on transfer. The General Partner is the general partner
of both AllianceBernstein and Holding.
In
October 2000, our two legacy firms, Alliance Capital and Bernstein, combined,
bringing together Alliance Capital’s expertise in growth equity and corporate
fixed income investing, and its family of retail mutual funds, with Bernstein’s
expertise in value equity and tax-exempt fixed income management, and its
private client and institutional research services businesses. For additional
details about our business combination, see “Principal Security Holders” in
Item 12.
As of
December 31, 2007, the condensed ownership structure of AllianceBernstein was as
follows (for a more complete description of our ownership structure, see “Principal Security Holders” in
Item 12):
As of
December 31, 2007, AXA, through certain of its subsidiaries (see “Principal Security Holders” in
Item 12),
beneficially owned approximately 62.8% of the issued and outstanding
AllianceBernstein Units (including those held indirectly through its ownership
of approximately 1.7% of the issued and outstanding Holding Units).
The
General Partner, an indirect wholly-owned subsidiary of AXA, owns 100,000
general partnership units in Holding and a 1% general partnership interest in
AllianceBernstein. Including the general partnership interests in Holding and
AllianceBernstein and its equity interest in Holding, AXA, through certain of
its subsidiaries, had an approximate 63.2% economic interest in
AllianceBernstein as of December 31, 2007.
AXA and
its subsidiaries own all of the issued and outstanding shares of the common
stock of AXA Financial. AXA Financial owns all of the issued and outstanding
shares of AXA Equitable. See
“Principal Security Holders” in Item 12.
AXA, a
société anonyme
organized under the laws of France, is the holding company for an international
group of insurance and related financial services companies engaged in the
financial protection and wealth management businesses. AXA’s operations are
diverse geographically, with major operations in Western Europe, North America,
and the Asia/Pacific regions and, to a lesser extent, in other regions including
the Middle East and Africa. AXA has five operating business segments: life and
savings, property and casualty, international insurance, asset management, and
other financial services. Competition
The
financial services industry is intensely competitive and new entrants are
continually attracted to it. No single or small group of competitors is dominant
in the industry.
We
compete in all aspects of our business with numerous investment management
firms, mutual fund sponsors, brokerage and investment banking firms, insurance
companies, banks, savings and loan associations, and other financial
institutions that often provide investment products that have similar features
and objectives as those we offer. Our competitors offer a wide range of
financial services to the same customers that we seek to serve. Some of our
competitors are larger, have a broader range of product choices and investment
capabilities, conduct business in more markets, and have substantially greater
resources than we do. These factors may place us at a competitive disadvantage,
and we can give no assurance that our strategies and efforts to maintain and
enhance our current client relationships, and create new ones, will be
successful.
AXA, AXA
Equitable, and certain of their direct and indirect subsidiaries provide
financial services, some of which are competitive with those offered by
AllianceBernstein. The AllianceBernstein Partnership Agreement specifically
allows AXA Financial and its subsidiaries (other than the General Partner) to
compete with AllianceBernstein and to exploit opportunities that may be
available to AllianceBernstein. AXA, AXA Financial, AXA Equitable and certain of
their subsidiaries have substantially greater financial resources than we do and
are not obligated to provide resources to us.
To grow
our business, we must be able to compete effectively for assets under
management. Key competitive factors include:
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