AllianceBernstein Holding 10-K 12-31-2006
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM 10-K
ý
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For
the Fiscal Year Ended December 31, 2006
OR
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For
the transition period from
to
Commission
file number 001-09818
ALLIANCEBERNSTEIN
HOLDING
L.P.
(Exact
name of registrant as specified in its charter)
Delaware
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13-3434400
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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1345
Avenue of the Americas, New York, N.Y.
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10105
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code:
(212) 969-1000
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Securities
registered pursuant to Section 12(b) of the Act:
Title
of Class
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Name
of each exchange on which registered
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units
representing assignments of beneficial ownership of limited partnership
interests*
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New
York Stock Exchange
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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):
Large
accelerated filer ý
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Accelerated
filer o
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Non-accelerated
filer o
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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, 2006 was approximately
$4,995,985,095.
The
number of units representing assignments of beneficial ownership of limited
partnership interests outstanding as of January 31, 2007 was
85,919,404.*
DOCUMENTS
INCORPORATED BY REFERENCE
This
Form 10-K does not incorporate any document by reference.
_______________
* |
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.
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ii
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Part I
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Item
1.
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Item
1A.
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Item
1B.
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Item
2.
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Item
3.
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Item
4.
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Part II
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Item
5.
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Item
6.
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Item
7.
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Item
7A.
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Item
8.
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63
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Item
9.
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Item
9A.
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Item
9B.
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Part III
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Item
10.
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100 |
Item
11.
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Item
12.
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Item
13.
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Item
14.
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Part IV
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Item
15.
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128 |
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131
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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,
AllianceBernstein and its subsidiaries, 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. Holding Unitholders own
partnership interests in a holding company whose principal source of income
and
cash flow is attributable to its ownership of limited partnership interests
in
AllianceBernstein.
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.
Clients
AllianceBernstein
provides research, diversified investment management and related services
globally to a broad range of clients, including:
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institutional
clients, including unaffiliated corporate and public employee pension
funds, endowment funds, domestic and foreign institutions and governments,
and various affiliates;
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private
clients, including high-net-worth individuals, trusts and estates,
charitable foundations, partnerships, private and family corporations,
and
other entities; and
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institutional
investors desiring independent institutional
research.
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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. We are dedicated to creating and sustaining a fiduciary culture.
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
comply with
all
applicable rules and regulations and internal compliance 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. Some of the
specific steps we’ve taken in recent years to help us achieve these goals
include:
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revising
our code of ethics to better align the interests of our employees
with
those of our clients;
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forming
two committees composed primarily of executive management to oversee
and
resolve code of ethics and compliance-related
issues;
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creating
an ombudsman office, where employees and others can voice concerns
on a
confidential basis; and
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initiating
firm-wide compliance and ethics training
programs.
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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 specialist 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:
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To
our institutional clients, we offer separately managed accounts,
sub-advisory relationships, structured products, group trusts, mutual
funds, and other investment vehicles (“Institutional Investment
Services”);
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To
our retail clients, we offer retail mutual funds sponsored by
AllianceBernstein, our subsidiaries, and our affiliated joint venture
companies, sub-advisory relationships with mutual funds sponsored
by third
parties, separately managed account programs that are sponsored by
various
financial intermediaries worldwide (“Separately Managed Account
Programs”), and other investment vehicles (collectively, “Retail
Services”);
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To
our private clients, we offer separately managed accounts, hedge
funds,
mutual funds, and other investment vehicles (“Private Client Services”);
and
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To
our institutional investors, we offer in-depth, independent, fundamental
research, portfolio strategy, trading, and brokerage-related services
(“Institutional Research
Services”).
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This
broad range of investment services is provided by a group of investment
professionals with significant expertise in their respective disciplines. As
of
December 31, 2006, our 329 research analysts, located around the world,
supported our 174 portfolio managers. Our portfolio managers have an average
of 19
years
of experience in the industry and 10 years of experience with AllianceBernstein.
Together, they oversee a number of different types of investment products within
various vehicles and strategies, including separately managed accounts, mutual
funds, hedge funds, structured products, and other investment vehicles. Our
investment services include:
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Growth
equities, generally targeting stocks with under-appreciated growth
potential;
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Value
equities, generally targeting stocks that are out of favor and that
may
trade at bargain prices;
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Fixed
income securities, including both taxable and tax-exempt
securities;
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Passive
management, including both index and enhanced index strategies;
and
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Blend
strategies, combining style pure investment components with systematic
rebalancing.
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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, 2006, blend AUM were $134 billion (representing 19% of our
company-wide AUM), an increase of 52% from $88 billion as of December 31,
2005 and 154% from $53 billion as of December 31, 2004.
Sub-advisory
client mandates span our investment strategies, including growth, value, fixed
income, and blend. We serve as sub-adviser for retail mutual funds, insurance
products, retirement platforms, and institutional investment products. Dedicated
marketing and client servicing professionals are responsible for servicing
these
relationships.
Global
Reach
We
serve
clients in major global markets through operations in 47 cities
in
24 countries.
Our client base includes investors throughout the Americas, Europe, Asia,
Africa, and Australia. We utilize an integrated global investment platform
that
provides our clients with access to local (country-specific), international,
and
global research and investment strategies.
Assets
under management by client domicile and investment service as of December 31,
2006, 2005, and 2004 were as follows:
By
Client Domicile ($ in billions):
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December 31,
2006
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December 31,
2005
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December 31,
2004
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By
Investment Service ($ in billions):
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December 31,
2006
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December 31,
2005
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December 31,
2004
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As
the
above charts indicate, our business continues to become increasingly global.
Our
international client base increased by 44% during 2006 and 30% during 2005
and,
likewise, our global and international AUM increased by 50% during 2006 and
38%
during 2005. In addition, approximately 76%, 69%, and 51% of our gross asset
inflows (sales / new accounts) during 2006, 2005, and 2004, respectively, were
invested in global and international investment services.
Revenues
We
earn
revenues 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, with such 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 increase
or decrease. Increases in AUM generally result from market appreciation,
positive investment performance for clients, or net asset inflows from new
or
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
sometimes charge a performance-based fee in addition to or in lieu of a base
fee. Performance-based fees are 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, and they are recorded as revenue
at
the end of the measurement period. Accordingly, as performance-based fees
continue to become an increasingly important part of our business, the
seasonality and volatility of our revenues and earnings may become more
significant.
We
sometimes experience periods when the number of new accounts or the amount
of
AUM increases significantly, as well as periods when the number of client
accounts or the amount of AUM decreases significantly. These shifts result
from
wide-ranging factors, including conditions of financial markets, our investment
performance for clients, and changes in the investment preferences of our
clients.
We
earn
revenues from clients to whom we provide fundamental research, trading, 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 clients.
For
additional information about possible fluctuation in our revenues, see
“Risk Factors” in Item 1A.
Employees
As
of
December 31, 2006, we had 4,914 full-time employees, including 329 research
analysts, 174 portfolio managers, 61 traders, and 28 professionals with other
investment-related responsibilities. We have employed these professionals for
an
average period of approximately eight years, and their average investment
experience is approximately 15 years. We consider our employee relations to
be
good.
Institutional
Investment Services
We
serve
our institutional clients through AllianceBernstein Institutional Investments,
a
unit of AllianceBernstein, and through other units in our international
subsidiaries and one of our joint ventures. 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, group trusts, mutual funds,
and
other investment vehicles. As of December 31, 2006, institutional assets
under management were $455 billion, or 64% of our company-wide assets under
management. 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 2,200 separate accounts
for
these clients, which are located in more than 40 countries. As
of
December 31, 2006, we managed employee benefit plan assets for 47
of the
Fortune 100 companies, and we managed public pension fund assets for
37 states
and/or municipalities in those states.
Our
Institutional Investment Services are becoming increasingly global. As of
December 31, 2006, our institutional AUM invested in global and
international investment services increased to $269 billion, or 59% of
institutional AUM, from $172 billion, or 48% of institutional AUM, as of
December 31, 2005, and from $124 billion, or 40% of institutional AUM, as
of December 31, 2004. Similarly, as of December 31, 2006, the AUM we
invested for clients domiciled outside the United States increased to $214
billion, or 47% of institutional AUM, from $137 billion, or 38% of institutional
AUM, as of December 31, 2005, and from $103 billion, or 33% of
institutional AUM, as of December 31, 2004.
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”). As
of December 31, 2006, retail AUM, which are determined by subtracting
applicable liabilities from AUM, were $167 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 Services are designed to provide disciplined, research-based investments
that contribute to a well-diversified investment portfolio. We distribute our
Retail Products through financial intermediaries, including broker-dealers,
insurance sales representatives, banks, registered investment advisers, and
financial planners.
Our
Retail Products 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. Also among these products are
Separately Managed Account Programs, which are sponsored by various financial
intermediaries worldwide 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.
AllianceBernstein
Investments serves as the principal underwriter and distributor of the U.S.
Funds. AllianceBernstein Investments employs approximately 175 sales
representatives who devote their time exclusively to promoting the sale of
U.S.
Funds and certain other Retail Products by financial intermediaries.
AllianceBernstein Investments services approximately 3.9 million
shareholder accounts.
AllianceBernstein
(Luxembourg) S.A. (“AllianceBernstein Luxembourg”), one of our wholly-owned
subsidiaries, generally serves as the placing or distribution agent for the
Non-U.S. Funds. AllianceBernstein Luxembourg employs approximately 65 sales
representatives who devote their time exclusively to promoting the sale of
Non-U.S. Funds and other Retail Products by financial
intermediaries.
Our
Retail Services are also becoming increasingly global. As of December 31,
2006, our retail AUM invested in global and international investment services
increased to $86 billion, or 52% of retail AUM, from $65 billion, or 45% of
retail AUM, as of December 31, 2005, and from $48 billion, or 30% of retail
AUM, as of December 31, 2004. As of December 31, 2006, the AUM we
invested for clients domiciled outside the U.S. increased to $40 billion, or
24%
of retail AUM, from $39 billion, or 27% of retail AUM, as of December 31,
2005, and from $32 billion, or 19% of retail AUM, as of December 31,
2004.
We
offer
the following Retail Products to clients domiciled outside the United
States:
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Internationally-distributed
retail funds that currently offer 35 different
portfolios to non-U.S. investors distributed by local financial
intermediaries by means of distribution agreements in most major
international markets (retail AUM in these funds totaled $23 billion
as of
December 31, 2006);
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Local-market
funds that we distribute through financial intermediaries in specific
countries, including Japan, Hong Kong, Singapore, and Taiwan (retail
AUM
in these funds totaled $5 billion as of December 31, 2006);
and
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Retail
sub-advisory mandates (AUM in these relationships totaled $12 billion
as
of December 31, 2006).
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Our
U.S.
Funds, which include retail funds, our variable products series fund (an
insurance product), and the Sanford C. Bernstein Funds (principally Private
Client Services products), currently offer 124 different portfolios to U.S.
investors. As of December 31, 2006, retail U.S. Funds AUM was approximately
$58 billion, or 35% 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, which totaled $27 billion as of December 31, 2006, as private client
AUM.
Cash
Management Services
During
June 2005, AllianceBernstein and Federated Investors, Inc. (“Federated”)
completed a transaction pursuant to which Federated acquired our retail cash
management services. For additional information, see
Note 21 to AllianceBernstein’s consolidated financial statements in Item
8.
Bernstein
GWM combines the former private client services group of Bernstein, which has
served private clients for over 35 years, and the former private client group
of
Alliance Capital. As of December 31, 2006, private client AUM was $95
billion, or 13% 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 $400,000.
Our
Private Client Services are built on a direct sales effort that
involves approximately
298 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 any other relevant factors. Our private clients have access to 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., including 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.
Financial advisors have also been based in London since
the
third quarter of 2006. Bernstein GWM added 37 financial advisors in 2006 (a
14.2% increase from 2005), and plans to add additional advisors in
2007.
Non-U.S.
investment services have become increasingly important in the private client
channel. As of December 31, 2006, our private client AUM invested in global
and international investment services increased to $29 billion, or 30% of
private client AUM, from $20 billion, or 26% of private client AUM, as of
December 31, 2005, and from $14 billion, or 22% of private client AUM, as
of December 31, 2004.
Institutional
Research Services
Institutional
Research Services (“IRS”) consist of in-depth, independent, fundamental
research, portfolio strategy, trading and brokerage-related services provided
to
institutional investors such as pension fund, hedge fund, and mutual fund
managers, and other institutional investors. Trade execution and
brokerage-related services are provided by SCB LLC in the United States and
SCBL
primarily in Europe. As of December 31, 2006, SCB LLC and SCBL (together,
“SCB”) served approximately 1,325 clients in the U.S. and approximately 390
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 in-depth fundamental company and industry research, along with
disciplined research into securities valuation and factors affecting stock-price
movements. Company and industry 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 160 people, including 52 senior analysts.
In
2006,
SCB expanded its research capabilities in London and now has 16 published
analysts covering industries and companies in Europe. In addition, SCB LLC’s
trading and brokerage operations were enhanced in 2005 with the launch of
several proprietary algorithmic trading products. These product additions
complemented other major changes already undertaken to transform our
trading capability, including the launch of a dedicated sector block trading
desk and the expansion of our product specialist team.
Assets
Under Management, Revenues, and
Fees
The
following tables summarize our AUM and revenues by distribution
channel:
Assets
Under Management(1)(2)
|
|
December 31,
|
|
% Change
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006-05
|
|
2005-04
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
Institutional
Investment Services
|
|
$
|
455,069
|
|
$
|
358,545
|
|
$
|
309,883
|
|
|
26.9
|
%
|
|
15.7
|
%
|
Retail
Services
|
|
|
166,928
|
|
|
145,134
|
|
|
134,882
|
|
|
15.0
|
|
|
7.6
|
|
Private
Client Services
|
|
|
94,898
|
|
|
74,873
|
|
|
63,600
|
|
|
26.7
|
|
|
17.7
|
|
|
|
|
716,895
|
|
|
578,552
|
|
|
508,365
|
|
|
23.9
|
|
|
13.8
|
|
Dispositions(3)
|
|
|
—
|
|
|
—
|
|
|
30,399
|
|
|
—
|
|
|
(100.0
|
)
|
Total
|
|
$
|
716,895
|
|
$
|
578,552
|
|
$
|
538,764
|
|
|
23.9
|
|
|
7.4
|
|
____________
(1)
|
Excludes
certain non-discretionary client
relationships.
|
(2)
|
Starting
in 2005, we revised the way we classify our AUM to better align publicly
reported AUM with our internal reporting. AUM as of December 31, 2004
has been reclassified by investment service and distribution channel,
including the fixed income portions of balanced accounts previously
reported in equity, to conform to the 2005 and 2006
presentation.
|
(3)
|
Includes
AUM of cash management services, South African joint venture interest,
and
Indian mutual funds. For information about these dispositions,
see
Note 21 to AllianceBernstein’s consolidated financial statements in Item
8.
|
Revenues(1)
|
|
Years Ended December 31,
|
|
% Change
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006-05
|
|
2005-04
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Institutional
Investment Services
|
|
$
|
1,221,780
|
|
$
|
894,781
|
|
$
|
727,696
|
|
|
36.5
|
%
|
|
23.0
|
%
|
Retail
Services
|
|
|
1,303,849
|
|
|
1,188,553
|
|
|
1,288,939
|
|
|
9.7
|
|
|
(7.8
|
)
|
Private
Client Services
|
|
|
882,881
|
|
|
673,216
|
|
|
543,446
|
|
|
31.1
|
|
|
23.9
|
|
Institutional
Research Services
|
|
|
375,075
|
|
|
352,757
|
|
|
420,141
|
|
|
6.3
|
|
|
(16.0
|
)
|
Other
|
|
|
354,655
|
|
|
199,281
|
|
|
108,007
|
|
|
78.0
|
|
|
84.5
|
|
Total
Revenues
|
|
|
4,138,240
|
|
|
3,308,588
|
|
|
3,088,229
|
|
|
25.1
|
|
|
7.1
|
|
Less:
Interest Expense
|
|
|
187,833
|
|
|
95,863
|
|
|
32,796
|
|
|
95.9
|
|
|
192.3
|
|
Net
Revenues
|
|
$
|
3,950,407
|
|
$
|
3,212,725
|
|
$
|
3,055,433
|
|
|
23.0
|
|
|
5.1
|
|
____________
(1) |
Certain
prior-year amounts have been reclassified to conform to our 2006
presentation. See
Note 2 to AllianceBernstein’s consolidated financial statements in Item
8.
|
AXA
Financial, AXA Equitable, and our other affiliates, whose AUM consist primarily
of fixed income investments, together constitute our largest client. Our
affiliates represented approximately 16%, 19%, and 19% of our company-wide
AUM
as of December 31, 2006, 2005, and 2004, respectively. We also earned
approximately 5% of our company-wide net revenues from them for each of 2006,
2005, and 2004. We manage some of these assets as part of our Institutional
Investment Services and some as part of 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)
|
|
December 31
|
|
% Change
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006-05
|
|
2005-04
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
Growth
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
36,670
|
|
$
|
39,721
|
|
$
|
39,600
|
|
|
(7.7
|
)%
|
|
0.3
|
%
|
Global and
International
|
|
|
66,242
|
|
|
39,327
|
|
|
23,326
|
|
|
68.4
|
|
|
68.6
|
|
|
|
|
102,912
|
|
|
79,048
|
|
|
62,926
|
|
|
30.2
|
|
|
25.6
|
|
Value
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
55,562
|
|
|
50,556
|
|
|
51,006
|
|
|
9.9
|
|
|
(0.9
|
)
|
Global and
International
|
|
|
158,572
|
|
|
101,791
|
|
|
68,595
|
|
|
55.8
|
|
|
48.4
|
|
|
|
|
214,134
|
|
|
152,347
|
|
|
119,601
|
|
|
40.6
|
|
|
27.4
|
|
Fixed
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
73,414
|
|
|
74,964
|
|
|
77,314
|
|
|
(2.1
|
)
|
|
(3.0
|
)
|
Global and
International
|
|
|
39,166
|
|
|
27,709
|
|
|
25,859
|
|
|
41.3
|
|
|
7.2
|
|
|
|
|
112,580
|
|
|
102,673
|
|
|
103,173
|
|
|
9.6
|
|
|
(0.5
|
)
|
Index
/ Structured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
19,942
|
|
|
20,908
|
|
|
19,297
|
|
|
(4.6
|
)
|
|
8.3
|
|
Global and
International
|
|
|
5,501
|
|
|
3,569
|
|
|
4,886
|
|
|
54.1
|
|
|
(27.0
|
)
|
|
|
|
25,443
|
|
|
24,477
|
|
|
24,183
|
|
|
3.9
|
|
|
1.2
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
185,588
|
|
|
186,149
|
|
|
187,217
|
|
|
(0.3
|
)
|
|
(0.6
|
)
|
Global and
International
|
|
|
269,481
|
|
|
172,396
|
|
|
122,666
|
|
|
56.3
|
|
|
40.5
|
|
|
|
|
455,069
|
|
|
358,545
|
|
|
309,883
|
|
|
26.9
|
|
|
15.7
|
|
Dispositions(2)
|
|
|
—
|
|
|
—
|
|
|
1,375
|
|
|
—
|
|
|
(100.0
|
)
|
Total
|
|
$
|
455,069
|
|
$
|
358,545
|
|
$
|
311,258
|
|
|
26.9
|
|
|
15.2
|
|
____________
(1)
|
Excludes
certain non-discretionary client
relationships.
|
(2)
|
Represents
AUM of South African joint venture interest. For information about
this
disposition, see
Note 21 to AllianceBernstein’s consolidated financial statements in Item
8.
|
Revenues
From Institutional Investment Services(1)
(by
Investment Service)
|
|
Years Ended December 31,
|
|
% Change
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006-05
|
|
2005-04
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Investment
Advisory and Services Fees:
|
|
|
|
|
|
|
|
|
|
|
|
Growth
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
122,132
|
|
$
|
126,894
|
|
$
|
141,264
|
|
|
(3.8
|
)%
|
|
(10.2
|
)%
|
Global and
International
|
|
|
226,293
|
|
|
115,403
|
|
|
70,321
|
|
|
96.1
|
|
|
64.1
|
|
|
|
|
348,425
|
|
|
242,297
|
|
|
211,585
|
|
|
43.8
|
|
|
14.5
|
|
Value
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
154,163
|
|
|
155,046
|
|
|
154,681
|
|
|
(0.6
|
)
|
|
0.2
|
|
Global and
International
|
|
|
570,185
|
|
|
362,181
|
|
|
213,565
|
|
|
57.4
|
|
|
69.6
|
|
|
|
|
724,348
|
|
|
517,227
|
|
|
368,246
|
|
|
40.0
|
|
|
40.5
|
|
Fixed
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
97,452
|
|
|
95,585
|
|
|
113,581
|
|
|
2.0
|
|
|
(15.8
|
)
|
Global and
International
|
|
|
38,825
|
|
|
29,887
|
|
|
24,108
|
|
|
29.9
|
|
|
24.0
|
|
|
|
|
136,277
|
|
|
125,472
|
|
|
137,689
|
|
|
8.6
|
|
|
(8.9
|
)
|
Index
/ Structured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
4,993
|
|
|
5,159
|
|
|
5,116
|
|
|
(3.2
|
)
|
|
0.8
|
|
Global and
International
|
|
|
7,177
|
|
|
4,197
|
|
|
5,060
|
|
|
71.0
|
|
|
(17.1
|
)
|
|
|
|
12,170
|
|
|
9,356
|
|
|
10,176
|
|
|
30.1
|
|
|
(8.1
|
)
|
Total
Investment Advisory and Services Fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
378,740
|
|
|
382,684
|
|
|
414,642
|
|
|
(1.0
|
)
|
|
(7.7
|
)
|
Global and
International
|
|
|
842,480
|
|
|
511,668
|
|
|
313,054
|
|
|
64.7
|
|
|
63.4
|
|
|
|
|
1,221,220
|
|
|
894,352
|
|
|
727,696
|
|
|
36.5
|
|
|
22.9
|
|
Distribution
Revenues
|
|
|
560
|
|
|
429
|
|
|
—
|
|
|
30.5
|
|
|
n/m
|
|
Total
|
|
$
|
1,221,780
|
|
$
|
894,781
|
|
$
|
727,696
|
|
|
36.5
|
|
|
23.0
|
|
____________
(1)
|
Certain
prior-year amounts have been reclassified to conform to our 2006
presentation. We reclassified transaction charge revenues earned
from
certain Institutional Investment Services clients from investment
advisory
and services fees to Institutional Research
Services.
|
As
of
December 31, 2006, 2005, and 2004, Institutional Investment Services
represented approximately 64%, 62%, and 58%, respectively, of our company-wide
AUM. The fees we earned from these services represented approximately 31%,
28%,
and 24% of our company-wide net revenues for 2006, 2005, and 2004,
respectively.
We
manage
assets for AXA and its subsidiaries, which together constitute our largest
institutional client. These assets accounted for approximately 17%, 18%, and
20%
of our total institutional AUM as of December 31, 2006, 2005, and 2004,
respectively, and approximately 7%, 8%, and 9% of our total institutional
revenues for 2006, 2005, and 2004, respectively.
The
institutional AUM we manage for our affiliates, along with our nine other
largest institutional accounts, account for approximately 31% of our total
institutional AUM as of December 31, 2006 and approximately 16% of our
total institutional net revenues for the year ended December 31, 2006. 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, 2006.
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
charge
performance-based fees on approximately 15%
of
institutional assets under management. Performance-based fees provide for a
relatively low asset-based fee plus an additional fee based on investment
performance.
Retail
Services
The
following tables summarize our Retail Services AUM and revenues:
Retail
Services Assets Under Management
(by
Investment Service)
|
|
December 31,
|
|
% Change
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006-05
|
|
2005-04
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
Growth
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
28,587
|
|
$
|
31,193
|
|
$
|
33,436
|
|
|
(8.4
|
)%
|
|
(6.7
|
)%
|
Global and
International
|
|
|
19,937
|
|
|
19,523
|
|
|
14,670
|
|
|
2.1
|
|
|
33.1
|
|
|
|
|
48,524
|
|
|
50,716
|
|
|
48,106
|
|
|
(4.3
|
)
|
|
5.4
|
|
Value
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
35,749
|
|
|
32,625
|
|
|
32,113
|
|
|
9.6
|
|
|
1.6
|
|
Global
and International
|
|
|
38,797
|
|
|
16,575
|
|
|
8,600
|
|
|
134.1
|
|
|
92.7
|
|
|
|
|
74,546
|
|
|
49,200
|
|
|
40,713
|
|
|
51.5
|
|
|
20.8
|
|
Fixed
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
11,420
|
|
|
12,053
|
|
|
17,076
|
|
|
(5.3
|
)
|
|
(29.4
|
)
|
Global and
International
|
|
|
27,614
|
|
|
27,648
|
|
|
23,742
|
|
|
(0.1
|
)
|
|
16.5
|
|
|
|
|
39,034
|
|
|
39,701
|
|
|
40,818
|
|
|
(1.7
|
)
|
|
(2.7
|
)
|
Index
/ Structured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
4,824
|
|
|
4,230
|
|
|
4,203
|
|
|
14.0
|
|
|
0.6
|
|
Global and
International
|
|
|
—
|
|
|
1,287
|
|
|
1,042
|
|
|
(100.0
|
)
|
|
23.5
|
|
|
|
|
4,824
|
|
|
5,517
|
|
|
5,245
|
|
|
(12.6
|
)
|
|
5.2
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
80,580
|
|
|
80,101
|
|
|
86,828
|
|
|
0.6
|
|
|
(7.7
|
)
|
Global and
International
|
|
|
86,348
|
|
|
65,033
|
|
|
48,054
|
|
|
32.8
|
|
|
35.3
|
|
|
|
|
166,928
|
|
|
145,134
|
|
|
134,882
|
|
|
15.0
|
|
|
7.6
|
|
Dispositions(1)
|
|
|
—
|
|
|
—
|
|
|
28,670
|
|
|
—
|
|
|
(100.0
|
)
|
Total
|
|
$
|
166,928
|
|
$
|
145,134
|
|
$
|
163,552
|
|
|
15.0
|
|
|
(11.3
|
)
|
____________
(1)
|
Includes
AUM of cash management services and Indian mutual funds. For information
about these dispositions, see
Note 21 to AllianceBernstein’s consolidated financial statements in Item
8.
|
Revenues
From Retail Services(1)
(by
Investment Service)
|
|
Years Ended December 31,
|
|
% Change
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006-05
|
|
2005-04
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Investment
Advisory and Services Fees:
|
|
|
|
|
|
|
|
|
|
|
|
Growth
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
143,344
|
|
$
|
140,428
|
|
$
|
152,207
|
|
|
2.1
|
%
|
|
(7.7
|
)%
|
Global and
International
|
|
|
152,883
|
|
|
119,173
|
|
|
101,088
|
|
|
28.3
|
|
|
17.9
|
|
|
|
|
296,227
|
|
|
259,601
|
|
|
253,295
|
|
|
14.1
|
|
|
2.5
|
|
Value
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
123,355
|
|
|
119,545
|
|
|
115,907
|
|
|
3.2
|
|
|
3.1
|
|
Global and
International
|
|
|
133,314
|
|
|
64,718
|
|
|
27,957
|
|
|
106.0
|
|
|
131.5
|
|
|
|
|
256,669
|
|
|
184,263
|
|
|
143,864
|
|
|
39.3
|
|
|
28.1
|
|
Fixed
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.(2)
|
|
|
43,705
|
|
|
88,714
|
|
|
177,916
|
|
|
(50.7
|
)
|
|
(50.1
|
)
|
Global and
International
|
|
|
186,196
|
|
|
156,068
|
|
|
147,183
|
|
|
19.3
|
|
|
6.0
|
|
|
|
|
229,901
|
|
|
244,782
|
|
|
325,099
|
|
|
(6.1
|
)
|
|
(24.7
|
)
|
Index
/ Structured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
1,673
|
|
|
1,507
|
|
|
1,661
|
|
|
11.0
|
|
|
(9.3
|
)
|
Global and
International
|
|
|
3,363
|
|
|
3,640
|
|
|
3,130
|
|
|
(7.6
|
)
|
|
16.3
|
|
|
|
|
5,036
|
|
|
5,147
|
|
|
4,791
|
|
|
(2.2
|
)
|
|
7.4
|
|
Total
Investment Advisory and Services Fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
312,077
|
|
|
350,194
|
|
|
447,691
|
|
|
(10.9
|
)
|
|
(21.8
|
)
|
Global and
International
|
|
|
475,756
|
|
|
343,599
|
|
|
279,358
|
|
|
38.5
|
|
|
23.0
|
|
|
|
|
787,833
|
|
|
693,793
|
|
|
727,049
|
|
|
13.6
|
|
|
(4.6
|
)
|
Distribution
Revenues(3)
|
|
|
418,780
|
|
|
395,402
|
|
|
445,911
|
|
|
5.9
|
|
|
(11.3
|
)
|
Shareholder
Servicing Fees(3)
|
|
|
97,236
|
|
|
99,358
|
|
|
115,979
|
|
|
(2.1
|
)
|
|
(14.3
|
)
|
Total
|
|
$
|
1,303,849
|
|
$
|
1,188,553
|
|
$
|
1,288,939
|
|
|
9.7
|
|
|
(7.8
|
)
|
____________
(1)
|
Certain
prior-year amounts have been reclassified to conform to our 2006
presentation. We reclassified transaction charge revenues earned
from
certain Retail Services clients from investment advisory and services
fees
to Institutional Research Services.
|
(2) |
Reflects
disposition of cash management services. See Note 21 to
AllianceBernstein’s
consolidated financial statements in Item
8. |
(3)
|
For
a description of distribution revenues and shareholder servicing
fees,
see
below.
|
Fees
for
our Retail Products 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 and 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. 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 include variable products, which are open-end mutual funds
designed to fund variable annuity contracts and variable life insurance policies
offered by the separate accounts of life insurance companies (“Variable
Products”). We manage the AllianceBernstein Variable Products
Series Fund, Inc. (“ABVPS”), which serves as the investment vehicle
for insurance products offered by unaffiliated insurance companies, and we
sub-advise mutual funds sponsored by the following affiliates: EQAT, AXA
Enterprise Trust, AXA Premier VIP Trust, and AXA Asia Pacific Holdings Limited
and its subsidiaries (“AXA Asia Pacific”). As of December 31, 2006, the AUM
of Variable Products portfolios totaled approximately $58 billion.
EQAT,
AXA
Enterprise Trust, AXA Premier VIP Trust, AXA Asia Pacific, together with other
AXA affiliates, constitute our largest retail client. They accounted for
approximately 24%, 29%, and 24% of our total retail AUM as of December 31,
2006, 2005, and 2004, respectively, and approximately 7%, 8%, and 7% of our
total retail revenues for 2006, 2005 and 2004, 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 $23.7 million, $21.4 million, and $32.9 million, totaled
approximately $98.7 million, $74.2 million, and $44.6 billion during 2006,
2005,
and 2004, respectively.
The
rules of the National Association of Securities Dealers, Inc. (“NASD”)
effectively cap the aggregate sales charges that may be received 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 sometimes also receive sub-transfer agency or recordkeeping
payments from us and our U.S. Funds.
During
2006, the 10 financial intermediaries responsible for the largest volume of
sales of open-end AllianceBernstein Funds were responsible for 36% 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%, 3%, and 4%
of
total sales of shares of open-end AllianceBernstein Funds in 2006, 2005, and
2004, 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.
Subsidiaries
of Merrill Lynch & Co., Inc. (collectively “Merrill Lynch”) were
responsible for approximately 6%, 5%, and 6% of open-end AllianceBernstein
Fund
sales in 2006, 2005, and 2004, respectively. Citigroup Inc. (and its
subsidiaries, “Citigroup”) was responsible for approximately 5% of open-end
AllianceBernstein Fund sales in 2006, 5% in 2005, and 7% in 2004. 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
(December 2006), our market share in the U.S. mutual fund industry is 1.14%
of total industry assets and we accounted for 0.86% of total open-end industry
sales in the U.S. during 2006. 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.
Under
current interpretations of U.S. 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 2006, banks and their affiliates accounted
for
approximately 14% of open-end U.S. Funds and Variable Products
sales.
During
2004, each of the U.S. Funds appointed an independent compliance officer
reporting to the independent directors of each U.S. Fund. The expense of this
officer and his staff is borne by AllianceBernstein.
AllianceBernstein
Investor Services, Inc. (“Investor Services”), one of our wholly-owned
subsidiaries, 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. As of December 31, 2006, Investor Services employed
239 people. Investor Services operates in Secaucus, New Jersey, and San Antonio,
Texas. 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.
Most
AllianceBernstein Funds utilize our personnel to perform legal, clerical,
and accounting services not required to be provided by AllianceBernstein.
Payments by the U.S. Funds and certain Non-U.S. Funds for these services must
be
specifically approved in advance by the fund’s board of directors or trustees.
Currently, AllianceBernstein and Investor Services record revenues for providing
these services to the AllianceBernstein Funds at the rate of approximately
$7.0 million per year.
AllianceBernstein
Investor Services, a unit of AllianceBernstein Luxembourg (“ABIS Lux”), is the
transfer agent of substantially all of the Non-U.S. Funds. As of
December 31, 2006, ABIS Lux employed 59 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, which agreements
may be terminated by either party upon 60 days’ notice.
AllianceBernstein (Luxembourg) S.A. is one of our wholly-owned
subsidiaries.
Private
Client Services
The
following tables summarize Private Client Services AUM and
revenues:
Private
Client Services Assets Under Management
(by
Investment Service)
|
|
December 31,
|
|
% Change
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006-05
|
|
2005-04
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
Growth
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
13,237
|
|
$
|
9,986
|
|
$
|
7,022
|
|
|
32.6
|
%
|
|
42.2
|
%
|
Global and
International
|
|
|
9,418
|
|
|
6,390
|
|
|
4,001
|
|
|
47.4
|
|
|
59.7
|
|
|
|
|
22,655
|
|
|
16,376
|
|
|
11,023
|
|
|
38.3
|
|
|
48.6
|
|
Value
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
27.703
|
|
|
23,725
|
|
|
22,411
|
|
|
16.8
|
|
|
5.9
|
|
Global and
International
|
|
|
19,091
|
|
|
12,959
|
|
|
9,874
|
|
|
47.3
|
|
|
31.2
|
|
|
|
|
46,794
|
|
|
36,684
|
|
|
32,285
|
|
|
27.6
|
|
|
13.6
|
|
Fixed
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
25,032
|
|
|
21,471
|
|
|
20,111
|
|
|
16.6
|
|
|
6.8
|
|
Global and
International
|
|
|
328
|
|
|
241
|
|
|
75
|
|
|
36.1
|
|
|
221.3
|
|
|
|
|
25,360
|
|
|
21,712
|
|
|
20,186
|
|
|
16.8
|
|
|
7.6
|
|
Index
/ Structured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
80
|
|
|
101
|
|
|
106
|
|
|
(20.8
|
)
|
|
(4.7
|
)
|
Global and
International
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
89
|
|
|
101
|
|
|
106
|
|
|
(11.9
|
)
|
|
(4.7
|
)
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
66,052
|
|
|
55,283
|
|
|
49,650
|
|
|
19.5
|
|
|
11.3
|
|
Global and
International
|
|
|
28,846
|
|
|
19,590
|
|
|
13,950
|
|
|
47.2
|
|
|
40.4
|
|
|
|
|
94,898
|
|
|
74,873
|
|
|
63,600
|
|
|
26.7
|
|
|
17.7
|
|
Dispositions(1)
|
|
|
—
|
|
|
—
|
|
|
354
|
|
|
—
|
|
|
(100.0
|
)
|
Total
|
|
$
|
94,898
|
|
$
|
74,873
|
|
$
|
63,954
|
|
|
26.7
|
|
|
17.1
|
|
____________
(1)
|
Includes
AUM of cash management services. For information about this disposition,
see
Note 21 to AllianceBernstein’s consolidated financial statements in Item
8.
|
Revenues
From Private Client Services(1)
(by
Investment Service)
|
|
Years Ended December 31,
|
|
% Change
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006-05
|
|
2005-04
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Investment
Advisory and Services Fees:
|
|
|
|
|
|
|
|
|
|
|
|
Growth
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
134,070
|
|
$
|
93,716
|
|
$
|
62,892
|
|
|
43.1
|
%
|
|
49.0
|
%
|
Global and
International
|
|
|
83,615
|
|
|
58,308
|
|
|
39,086
|
|
|
43.4
|
|
|
49.2
|
|
|
|
|
217,685
|
|
|
152,024
|
|
|
101,978
|
|
|
43.2
|
|
|
49.1
|
|
Value
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
293,281
|
|
|
256,580
|
|
|
237,796
|
|
|
14.3
|
|
|
7.9
|
|
Global and
International
|
|
|
260,529
|
|
|
161,793
|
|
|
97,380
|
|
|
61.0
|
|
|
66.1
|
|
|
|
|
553,810
|
|
|
418,373
|
|
|
335,176
|
|
|
32.4
|
|
|
24.8
|
|
Fixed
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
108,418
|
|
|
99,868
|
|
|
104,010
|
|
|
8.6
|
|
|
(4.0
|
)
|
Global and
International
|
|
|
1,188
|
|
|
879
|
|
|
257
|
|
|
35.2
|
|
|
242.0
|
|
|
|
|
109,606
|
|
|
100,747
|
|
|
104,267
|
|
|
8.8
|
|
|
(3.4
|
)
|
Index
/ Structured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
75
|
|
|
103
|
|
|
653
|
|
|
(27.2
|
)
|
|
(84.2
|
)
|
Global and
International
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
75
|
|
|
103
|
|
|
653
|
|
|
(27.2
|
)
|
|
(84.2
|
)
|
Total
Investment Advisory and Services Fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
535,844
|
|
|
450,267
|
|
|
405,351
|
|
|
19.0
|
|
|
11.1
|
|
Global and
International
|
|
|
345,332
|
|
|
220,980
|
|
|
136,723
|
|
|
56.3
|
|
|
61.6
|
|
|
|
|
881,176
|
|
|
671,247
|
|
|
542,074
|
|
|
31.3
|
|
|
23.8
|
|
Distribution
Revenues
|
|
|
1,705
|
|
|
1,969
|
|
|
1,372
|
|
|
(13.4
|
)
|
|
43.5
|
|
Total
|
|
$
|
882,881
|
|
$
|
673,216
|
|
$
|
543,446
|
|
|
31.1
|
|
|
23.9
|
|
____________
(1)
|
Certain
prior-year amounts have been reclassified to conform to our 2006
presentation. We reclassified transaction charge revenues earned
from
certain Private Client Services clients from investment advisory
and
services fees to Institutional Research
Services.
|
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. For providing services to private
clients, we are compensated by fees calculated as a percentage of AUM and that
vary 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 charge performance-based fees
on
approximately 7% of private client assets under management, primarily assets
held in hedge funds.
We
market
and distribute our hedge funds globally to high-net-worth clients and, to a
lesser extent, institutional investors. Hedge fund AUM totaled $7.2 billion
as
of December 31, 2006, $5.8 billion of which was private client AUM and
$1.4 billion
of which was institutional AUM.
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 new 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 NYAG AoD
(see
“Regulation” in this Item 1 for the definition of NYAG AoD and additional
information)
or an
agreement with any other regulator.
Revenues
from Private Client Services represented approximately 22%, 21%, and 18% of
our
company-wide net revenues for the years ended December 31, 2006, 2005, and
2004, respectively.
Institutional
Research Services
The
following table summarizes Institutional Research Services
revenues:
Revenues
From Institutional Research Services
|
|
Years Ended December 31,
|
|
% Change
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006-05
|
|
2005-04
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Transaction
Execution and Research:
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Clients
|
|
$
|
296,736
|
|
$
|
290,511
|
|
$
|
371,127
|
|
|
2.1
|
%
|
|
(21.7
|
)%
|
Non-U.S.
Clients
|
|
|
69,279
|
|
|
57,870
|
|
|
45,598
|
|
|
19.7
|
|
|
26.9
|
|
|
|
|
366,015
|
|
|
348,381
|
|
|
416,725
|
|
|
5.1
|
|
|
(16.4
|
)
|
Other
|
|
|
9,060
|
|
|
4,376
|
|
|
3,416
|
|
|
107.0
|
|
|
28.1
|
|
Total
|
|
|
375,075
|
|
|
352,757
|
|
|
420,141
|
|
|
6.3
|
|
|
(16.0
|
)
|
Reclassification(1)
|
|
|
(1,760
|
)
|
|
(31,476
|
)
|
|
(116,532
|
)
|
|
(94.4
|
)
|
|
(73.0
|
)
|
Without
Reclassification
|
|
$
|
373,315
|
|
$
|
321,281
|
|
$
|
303,609
|
|
|
16.2
|
|
|
5.8
|
|
____________
(1)
|
SCB
earned revenues of approximately $1.8 million in 2006 from brokerage
transactions executed on behalf of AllianceBernstein
(acting on behalf of certain of its U.S. asset management clients
that
have authorized AllianceBernstein to use SCB for trade
execution)
which previously were reported as investment advisory and services
fees.
Since January 1, 2006, we have reported all revenues earned by SCB
from brokerage transactions executed for these clients as Institutional
Research Services revenues. Accordingly, we reclassified $31.5 million
and
$116.5 million of transaction charge revenue in 2005 and 2004,
respectively, from investment advisory and services fees to Institutional
Research Services to conform to our 2006 presentation.
|
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%, 11%, and
14%
of our company-wide net revenues for the years ended December 31, 2006, 2005,
and 2004, respectively.
Fee
rates
charged for brokerage transactions have declined significantly in recent years,
but increases in transaction volume and market share in both the U.S. and Europe
have more than offset decreases in fee rates. For additional information,
see
“Risk Factors” in Item 1A and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations - Executive Overview” in Item
7.
Custody
SCB
LLC
acts as custodian for the majority of AllianceBernstein’s
private client AUM and some of AllianceBernstein’s hedge fund AUM and
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 to 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 paying the
lowest possible commission rate, we take into account such factors as current
market conditions, 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 (“Soft Dollar Services”) a broker provides to us for the benefit of our
clients. Soft Dollar Services, 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 Soft Dollar 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 higher than
those charged by electronic trading networks and other “low-touch”
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 (e.g.,
our
obligation to obtain best execution). In 2006, we executed approximately $4.8
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.
We
have a
Brokerage Allocation Committee that covers equities and has principal oversight
responsibility for evaluating brokerage matters, including how to use the Soft
Dollar Services we receive in a manner that is in the best interests of our
clients and consistent with current regulatory requirements.
In
connection with our name changes to AllianceBernstein L.P. and AllianceBernstein
Holding L.P. in February 2006, we applied to register 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”.
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. Investor Services is registered with the SEC as a transfer
agent.
SCB
LLC
and AllianceBernstein Investments are registered with the SEC as broker-dealers.
SCB LLC is a member of the NYSE. SCBL is a broker regulated by the Financial
Services Authority of the United Kingdom (“FSA”) and is a member of the London
Stock Exchange. SCB LLC and AllianceBernstein Investments are subject to minimum
net capital requirements imposed by the SEC, and SCBL is subject to the
financial resources requirements of the FSA, as follows:
|
|
Minimum Net Capital/
Financial Resources as
of
December 31, 2006
|
|
|
|
Required
|
|
Actual
|
|
|
|
(in millions)
|
|
|
|
|
|
AllianceBernstein
Investments
|
|
$
|
21.6
|
|
$
|
42.4
|
|
SCB
|
|
|
41.5
|
|
|
154.1
|
|
SCBL
|
|
|
16.0
|
|
|
30.7
|
|
Total
|
|
$
|
79.1
|
|
$
|
227.2
|
|
Holding
Units trade publicly on the NYSE under the ticker symbol “AB”. Holding is an
NYSE listed company and, therefore, subject to the applicable regulations set
forth in the NYSE Listed Company Manual.
AllianceBernstein
Trust Company, LLC, a wholly-owned subsidiary of AllianceBernstein, is a
non-depository trust company chartered under New Hampshire law.
AllianceBernstein Trust Company was chartered in order to serve as trustee
and
investment adviser to company-sponsored collective investment trusts and is
authorized to act as trustee, executor, transfer agent, 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,
AllianceBernstein Trust Company must comply with New Hampshire laws applicable
to trust company operations (such as NH Revised Statutes Annotated Part 392),
certain federal laws (such as ERISA and sections of the Bank Secrecy Act),
and
the New Hampshire banking laws.
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 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 effort to comply.
Market
Timing Investigations
On
December 18, 2003, we entered into agreements with the SEC and the New
York State Attorney General (“NYAG”) in connection with their
investigations into trading practices in the shares of certain of our sponsored
mutual funds. Our agreement with the SEC was reflected in an Order of the
Commission (“SEC Order”) dated December 18, 2003 (amended and restated
January 15, 2004), while our final agreement with the NYAG was reflected in
the Assurance of Discontinuance dated September 1, 2004 (“NYAG AoD”). We took a
number of important initiatives to resolve these matters,
including:
|
•
|
establishing
a $250 million restitution fund to compensate fund shareholders for
the
adverse effects of market timing (“Restitution
Fund”);
|
|
•
|
reducing
by 20% (on a weighted average basis) the advisory fees on U.S. long-term
open-end retail mutual funds by reducing our advisory fee rates (resulting
in an approximate $66 million reduction in 2006 advisory fees, a
$63
million reduction in 2005 advisory fees, and a $70 million reduction
in
2004 advisory fees), and we will maintain these reduced fee rates
for at
least the five-year period that commenced January 1, 2004;
and
|
|
•
|
agreeing
to have an independent third party perform a comprehensive compliance
review biannually.
|
We
believe that our remedial actions provide reasonable assurance that the
deficiencies in our internal controls related to market timing will not
reoccur.
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 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. On September 30, 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.
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.
Certain
market timing-related litigation to which we are currently subject involves
the
State of West Virginia. For a description of these matters, see
“Legal Proceedings - Market Timing-related Matters” in Item 3.
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% New York City unincorporated business
tax (“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. Separate state and local
income tax returns are filed. Foreign corporate subsidiaries are generally
subject to taxes in the jurisdictions where they are located. Holding is a
publicly traded partnership for federal income tax purposes and is subject
to
the 4.0% UBT, net of credits for UBT paid by AllianceBernstein, and a 3.5%
federal tax on partnership gross income from the active conduct of a trade
or
business.
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. If Holding were to lose its status as a grandfathered publicly
traded partnership, it would be subject to corporate income tax, which would
reduce materially Holding’s net income and its quarterly distributions to
Holding Unitholders.
In
order
to preserve AllianceBernstein’s status as a private partnership for federal
income tax purposes, AllianceBernstein Units must not be considered publicly
traded. The AllianceBernstein Partnership Agreement provides that all transfers
of AllianceBernstein Units must be approved by AXA Equitable and the General
Partner; AXA Equitable and the General Partner approve only those transfers
permitted pursuant to one or more of the safe harbors contained in relevant
treasury regulations. If such units were considered readily tradable,
AllianceBernstein would be subject to federal and state corporate income tax
on
its net income. Furthermore, as noted above, should AllianceBernstein enter
into
a substantial new line of business, Holding, by virtue of its ownership of
AllianceBernstein, would lose its status as a grandfathered publicly traded
partnership and become subject to income tax.
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. 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 business. For additional details about our business combination,
see
Item 12.
As
of
December 31, 2006, the condensed ownership structure of AllianceBernstein
was as follows (for a more complete description of our ownership structure,
see
Item 12):
(1)
|
Direct
and indirect ownership including unallocated Holding Units held in
a trust
for our deferred compensation
plans.
|
As
of
December 31, 2006, AXA, through certain of its subsidiaries (see
Item 12),
beneficially owned approximately 1.7% of the issued and outstanding Holding
Units and approximately 59.3% of the issued and outstanding AllianceBernstein
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, as of December 31,
2006, AXA, through certain of its subsidiaries, had an approximate 60.3%
economic interest in AllianceBernstein.
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
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 area 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 (including reinsurance),
asset management, and other financial services (including banks).
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
Financial, 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:
|
•
|
our
commitment to place the interests of our clients
first;
|
|
•
|
the
quality of our research;
|
|
•
|
our
ability to attract, retain, and motivate highly skilled, and often
highly
specialized, personnel;
|
|
•
|
our
investment performance for clients;
|
|
•
|
the
array of investment products we
offer;
|
|
•
|
our
operational effectiveness;
|
|
•
|
our
ability to further develop and market our brand;
and
|
Increased
competition could reduce the demand for our products and services, and that
could have a material adverse effect on our revenues, financial condition,
results of operations, and business prospects.
Competition
is an important risk that our business faces and should be considered along
with
the other risk factors we discuss in
Item 1A below.
AllianceBernstein
and Holding file or furnish annual reports on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K and other reports required
to comply with federal securities laws. The public may read and copy any
materials filed with the SEC at the SEC’s Public Reference Room at 450
Fifth Street, NW, Washington, DC 20549. The public may obtain information
on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC also maintains an Internet site (http://www.sec.gov)
that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC.
AllianceBernstein
and Holding maintain an Internet site (http://www.alliancebernstein.com).
The
portion of the site at “Investor & Media Relations” and “Reports & SEC
Filings” links to both companies’ annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to
those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act. These reports are available through the site
free of charge as soon as reasonably practicable after such material is filed
with, or furnished to, the SEC.
Please
read this section along with the description of our business in
Item 1,
the
competition section just above, and AllianceBernstein’s financial
information contained
in Items 6, 7, and 8.
The
majority of the risk factors discussed below directly affect AllianceBernstein.
These risk factors also affect Holding because Holding’s principal source of
income and cash flow is attributable to its investment in AllianceBernstein.
See
also our discussion of risks associated with forward-looking
statements in
Item 7.
Changes
in financial market levels have a direct and significant impact on our assets
under management; a significant reduction in assets under management could
have
a material adverse effect on our revenues, financial condition, results of
operations, and business prospects.
Performance
of financial markets (both domestic and international), global economic
conditions, interest rates, inflation rates, tax regulation changes, and other
factors that are difficult to predict affect the mix, market values, and levels
of assets under management. Investment advisory and services fees, the largest
component of revenues, are generally calculated as a percentage of the value
of
assets under management and vary with the type of account managed. Accordingly,
fee income generally increases or decreases as assets under management increase
or decrease and is affected by market appreciation or depreciation, inflow
of
new client assets (including purchases of mutual fund shares), and outflow
of
client assets (including redemption of mutual fund shares). In addition,
changing market conditions and investment trends, particularly with respect
to
retirement savings, may reduce interest in certain of our investment products
and may result in a reduction in assets under management. In addition, a
shift towards fixed income products might result in a related decline in
revenues and income because we generally earn higher revenues from assets
invested in our equity services than in our fixed income services.
Declines
in financial markets or higher redemption levels in our mutual funds, or both,
as compared to the assumptions we have used to estimate undiscounted future
cash
flows from distribution plan fees, as described in
Item 7,
could
result in impairment of the deferred sales commission asset. Due to the
volatility of financial markets and changes in redemption rates, we are unable
to predict whether or when a future impairment of the deferred sales commission
asset might occur. The occurrence of an impairment would result in a material
charge to our earnings.
Our
business is dependent on investment advisory, selling and distribution
agreements that are subject to termination or non-renewal on short
notice.
We
derive
most of our revenues pursuant to written investment management agreements (or
other arrangements) with institutional investors, mutual funds, and private
clients, and selling and distribution agreements between AllianceBernstein
Investments and financial intermediaries that distribute AllianceBernstein
Funds. Generally, the investment management agreements (and other arrangements)
are terminable at any time or upon relatively short notice by either party.
The
selling and distribution 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. In addition, investors in
AllianceBernstein Funds can redeem their investments without notice. Any
termination of, or failure to renew, a significant number of these agreements,
or a significant increase in redemption rates, could have a material adverse
effect on our revenues, financial condition, results of operations, and business
prospects.
Our
ability to establish
new client relationships and maintain existing ones is partly dependent on
our
relationships with various financial intermediaries and consultants that are
not
obligated to continue to work with us.
Our
ability to market our mutual funds, sub-advisory services, and investment
services is partly dependent on our access to a client base of corporate and
public employee pension funds, endowment funds, domestic and foreign
institutions and governments, insurance companies, securities firms, brokers,
banks, and other intermediaries. These intermediaries generally offer their
clients investment products in addition to, and in competition with, our
products. In addition, certain institutional investors rely on consultants
to
advise them on the choice of investment adviser, and we are not always
considered among the best choices by all consultants. Also, our Private Client
Services group relies on referrals from financial planners, registered
investment advisers, and other professionals. We cannot be certain that we
will
continue to have access to, or receive referrals from, these third parties.
Loss
of such access or referrals could have a material adverse effect on our
revenues, financial condition, results of operations, and business
prospects.
We
may be unable to continue to attract and retain key
personnel.
Our
business depends on our ability to attract, retain, and motivate highly skilled,
and often highly specialized, technical, managerial, and executive personnel;
there is no assurance that we will be able to do so.
The
market for qualified research analysts, portfolio managers, financial advisers,
traders, and other professionals is extremely competitive and is characterized
by frequent movement of these investment professionals among different firms.
Portfolio managers and financial advisers often maintain strong, personal
relationships with their clients so their departure could cause us to lose
client accounts, which could have a material adverse effect on our revenues,
financial condition, results of operations, and business prospects.
Poor
investment performance could lead to loss of clients and a decline in
revenues.
Our
ability to achieve investment returns for clients that meet or exceed investment
returns for comparable asset classes and competing investment services is a
key
consideration when clients decide to keep their assets with us or invest
additional assets, as well as a prospective client’s decision to invest. Our
inability to meet relevant investment benchmarks could result in clients
withdrawing assets and in prospective clients choosing to invest with
competitors. This could also result in lower investment management fees,
including minimal or no performance-based fees, which could result in a decline
in our revenues.
We
may enter into more performance-based fee arrangements with our clients in
the future, which could cause
greater fluctuations in our revenues.
We
sometimes charge our clients performance-based fees where we earn a relatively
low base advisory fee and an additional fee if our investment performance
exceeds a specified benchmark. If we do not exceed our investment return target
for a particular period, we will not earn a performance-based fee for that
period and, if the target is based on cumulative returns, our ability to earn
performance-based fees in future periods may be impaired.
We
currently charge performance-based fees on approximately 15% of the assets
we
manage for our institutional clients and approximately 7% of the assets we
manage for private clients. Our performance-based fees are an increasingly
important part of our business. As the percentage of our AUM subject to
performance-based fees grows, seasonality and volatility of revenue and earnings
may become more significant.
Unpredictable
events, including natural disaster, technology failure, and terrorist attack,
could adversely impact our ability to conduct business.
War,
terrorist attack, power failure, natural disaster, and rapid spread of serious
disease could interrupt our operations by:
|
•
|
causing
disruptions in U.S. or global economic conditions, thus decreasing
investor confidence and making investment products generally less
attractive;
|
|
•
|
inflicting
loss of life;
|
|
•
|
triggering
massive technology failures or delays;
and
|
|
•
|
requiring
substantial capital expenditures and operating expenses to remediate
damage and restore operations.
|
Our
operations require experienced, professional staff. Loss of a substantial number
of such persons or an inability to provide properly equipped places for them
to
work may, by disrupting our operations, adversely affect our revenues, financial
condition, results of operations, and business prospects.
We
depend on various systems and technologies for our business to function properly
and to safeguard confidential information.
We
utilize software and related technologies throughout our business, including
both proprietary systems and those provided by outside vendors. Although we
have
established and tested business continuity plans, we may experience systems
delays and interruptions and it is not possible to predict with certainty all
of
the adverse effects that could result from our failure, or the failure of a
third party, to efficiently address these problems. These adverse effects could
include the inability to perform critical business functions or failure to
comply with financial reporting and other regulatory requirements, which could
lead to loss of client confidence, harm to our reputation, exposure to
disciplinary action, and liability to our clients. Accordingly, potential system
failures and the cost necessary to correct those failures could have a material
adverse effect on our revenues, financial condition, results of operations,
and
business prospects.
In
addition, we could be subject to losses if we fail to properly safeguard
sensitive and confidential information. As part of our normal operations, we
maintain and transmit confidential information about our clients as well as
proprietary information relating to our business operations. Our systems could
be damaged by unauthorized users or corrupted by computer viruses or other
malicious software code, or authorized persons could inadvertently or
intentionally release confidential or proprietary information. Such disclosure
could, among other things, allow competitors access to our proprietary business
information and require significant time and expense to investigate and
remediate the breach.
A
failure in our operational systems or infrastructure, or those of third parties,
could disrupt our operations, damage our reputation, and reduce our
revenues.
Weaknesses
or failures in our internal processes, people or systems could lead to
disruption of our operations, liability to clients, exposure to disciplinary
action, or harm to our reputation. Our business is highly dependent on our
ability to process, on a daily basis, large numbers of transactions, many of
which are highly complex, across numerous and diverse markets. These
transactions generally must adhere to investment guidelines, as well as
stringent legal and regulatory standards.
Despite
the contingency plans and facilities we have in place, our ability to conduct
business may be adversely affected by a disruption in the infrastructure that
supports our operations and the communities in which they are located. This
may include a disruption involving electrical, communications, transportation
or
other services used by AllianceBernstein or third parties with which we conduct
business. If a disruption occurs in one location and our employees in that
location are unable to occupy our offices or communicate with or travel to
other
locations, our ability to conduct business with and on behalf of our clients
may
suffer, and we may not be able to successfully implement contingency plans
that
depend on communication or travel.
Our
business is based on the trust and confidence of our clients; any damage to
that
trust and confidence can cause assets under management to decline and can have
a
material adverse effect on our revenues, financial
condition, results of operations, and business prospects.
We
are
dedicated to earning and maintaining the trust and confidence of our clients;
the good reputation created thereby is essential to our business. Damage to
our
reputation could substantially impair our ability to maintain or grow our
business.
We
may not always successfully manage potential conflicts of interest that arise
in
our business.
Our
reputation is one of our most important assets. As our business and client
base
expand, we increasingly must manage potential conflicts of interest, including
situations where our services to a particular client conflict, or are perceived
to conflict, with the interests of another client, as well as situations where
certain of our employees have access to material non-public information that
may
not be shared with all employees of our firm. Failure to adequately address
potential conflicts of interest could adversely affect our revenues, financial
condition, results of operations, and business prospects.
We
have
procedures and controls that are designed to address and manage conflicts of
interest, including those designed to prevent the improper sharing of
information. However, appropriately managing conflicts of interest is complex
and difficult, and our reputation could be damaged and the willingness of
clients to enter into transactions in which such a conflict might arise may
be
affected if we fail, or appear to fail, to deal appropriately with conflicts
of
interest. In addition, potential or perceived conflicts could give rise to
litigation or enforcement actions.
Rates
we charge for brokerage transactions have declined significantly in recent
years, and we expect those declines to continue, which could have an adverse
effect on our revenues.
Fee
rates
charged for brokerage transactions have declined significantly in recent years
and this has affected our Institutional Research Services revenues. To date,
increases in transaction volume and market share have more than offset decreases
in rates, but this may not continue. Brokerage transaction revenues are also
affected by the increasing use of electronic trading systems which charge
transaction fees for execution-only services that are a small fraction of the
full service fee rates traditionally charged by SCB and other brokers for
brokerage services and the provision of proprietary research. Also, regulatory
changes in the United Kingdom and the United States have resulted or will result
in investors being given more information regarding the allocation of amounts
they are paying for brokerage between execution services and research services
and this may further reduce the willingness of investors to pay current
rates for full-service brokerage. All of these factors may result in
reductions in per transaction brokerage fees that SCB charges its clients;
we
expect these reductions to continue.
The
costs of insurance are substantial and may increase.
Our
insurance expenses increased significantly between 2001 and 2004 and, although
they decreased slightly in 2005 and 2006, increases in the future are possible.
In addition, certain insurance coverage may not be available or
may only be available at prohibitive costs. As we renew our insurance
policies, we may be subject to additional costs resulting from rising
premiums, the assumption of higher deductibles and/or co-insurance liability,
a
revised premium-sharing arrangement with certain U.S. Funds, and, to the extent
certain U.S. Funds purchase separate directors and officers/errors and omissions
liability coverage, an increased risk of insurance companies disputing
responsibility for joint claims. Higher insurance costs and incurred deductibles
reduce our net income.
Our
business is subject to pervasive global regulation, the
compliance with which could involve substantial expenditures of time and money,
and the violation of which could result in material adverse
consequences.
Virtually
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 conduct business. If we
violate these laws or regulations, we could be subject to civil liability,
criminal liability, or sanction, including revocation of our and our
subsidiaries’ registrations as investment advisers or broker-dealers, revocation
of the licenses of our employees, censures, fines, or temporary suspension
or
permanent bar from conducting business. A regulatory proceeding, even if it
does
not result in a finding of wrongdoing or sanction, could require substantial
expenditures of time and money. Any such liability or sanction could have a
material adverse effect on our revenues, financial condition, results of
operations, and business prospects. These laws and regulations generally grant
supervisory agencies and bodies broad administrative powers, including, in
some
cases, the power to limit or restrict doing business for failure to comply
with
such laws and regulations. Moreover, regulators in non-U.S. jurisdictions could
change their policies or laws in a manner that might restrict or otherwise
impede our ability to market, distribute, or register investment products in
their respective markets. These local requirements could increase the expenses
we incur in a specific jurisdiction without any corresponding increase in
revenues from operating in the jurisdiction.
Due
to
the extensive laws and regulations to which we are subject, we devote
substantial time and effort to legal and regulatory compliance issues. In
addition, the regulatory environment in which we operate changes frequently
and
regulations have increased significantly in recent years. We may be
adversely affected as a result of new or revised legislation or regulations
or
by changes in the interpretation or enforcement of existing laws and
regulations.
The
financial services industry is highly competitive.
The
financial services industry is intensely competitive. We compete on the basis
of
a number of factors, including our array of investment services, our investment
performance for our clients, innovation, reputation, and price. As our global
presence continues to expand, we may face competitors with more experience
and
more established relationships with clients, regulators and industry
participants in the relevant market, which could adversely affect our ability
to
expand.
We
are involved in various legal proceedings and regulatory matters and may be
involved in such proceedings in the future, any one or combination of which
could have a material adverse effect on our revenues, financial condition,
results of operations, and business prospects.
We
are
involved in various matters, including employee arbitrations, regulatory
inquiries, administrative proceedings, and litigation, some of which allege
material damages, and we may be involved in additional matters in the
future. Litigation is subject to significant uncertainties, particularly when
plaintiffs allege substantial or indeterminate damages, or when the litigation
is highly complex or broad in scope. We have described all pending material
legal proceedings in
Item 3.
Risks
related to the Partnerships’ structure
The
partnership structure of Holding and AllianceBernstein limits unitholders’
abilities to influence the management and operation of AllianceBernstein’s
business and is highly likely to prevent a change in control of Holding and
AllianceBernstein.
The
General Partner, as general partner of both Holding and AllianceBernstein,
generally has the exclusive right and full authority and responsibility to
manage, conduct, control, and operate their respective businesses, except as
otherwise expressly stated in their respective Amended and Restated Agreements
of Limited Partnership. Holding and AllianceBernstein unitholders have more
limited voting rights on matters affecting AllianceBernstein than do holders
of
common stock in a corporation. The respective Amended and Restated Agreements
of
Limited Partnership provide that unitholders do not have any right to vote
for
directors of the General Partner and that unitholders can only vote on certain
extraordinary matters (including removal of the General Partner under certain
extraordinary circumstances). Additionally, the AllianceBernstein Partnership
Agreement includes significant restrictions on transfers of AllianceBernstein
Units and provisions that have the practical effect of preventing the removal
of
the General Partner, which are highly likely to prevent a change in control
of
AllianceBernstein’s management.
AllianceBernstein
Units are illiquid.
There
is
no public trading market for AllianceBernstein Units and AllianceBernstein
does
not anticipate that a public trading market will ever develop. The
AllianceBernstein Partnership Agreement restricts our ability to participate
in
a public trading market or anything substantially equivalent to one by providing
that any transfer which may cause AllianceBernstein to be classified as a
“publicly traded partnership” as defined in Section 7704 of the Internal
Revenue Code of 1986, as amended, shall be deemed void and shall not be
recognized by AllianceBernstein. In addition, AllianceBernstein Units are
subject to significant restrictions on transfer; all transfers of
AllianceBernstein Units are subject to the written consent of AXA Equitable
and
the General Partner pursuant to the AllianceBernstein Partnership Agreement.
Generally, neither AXA Equitable nor the General Partner will permit any
transfer that it believes would create a risk that AllianceBernstein would
be
treated as a corporation for tax purposes. AXA Equitable and the General Partner
have implemented a transfer policy that requires a seller to locate a purchaser,
and imposes annual volume restrictions on transfers. You may request a copy
of the transfer program from our corporate secretary ([email protected]).
Also,
we have filed the transfer program as Exhibit 10.09 to this
Form 10-K.
Failure
to properly maintain the partnership structure of Holding and AllianceBernstein
would have significant tax ramifications.
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. Holding is a publicly traded
partnership for federal income tax purposes and is subject to the 4.0% UBT,
net
of credits for UBT paid by AllianceBernstein, and a 3.5% federal tax on
partnership gross income from the active conduct of a trade or
business.
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. If Holding were to lose its status as a grandfathered publicly
traded partnership, it would be subject to corporate income tax, which would
reduce materially Holding’s net income and its quarterly distributions to
Holding Unitholders.
In
order
to preserve AllianceBernstein’s status as a private partnership for federal
income tax purposes, AllianceBernstein Units must not be considered publicly
traded. The AllianceBernstein Partnership Agreement provides that all transfers
of AllianceBernstein Units must be approved by AXA Equitable and the General
Partner; AXA Equitable and the General Partner approve only those transfers
permitted pursuant to one or more of the safe harbors contained in relevant
treasury regulations. If such units were considered readily tradable,
AllianceBernstein would be subject to federal and state corporate income tax
on
its net income. Furthermore, as noted above, should AllianceBernstein enter
into
a substantial new line of business, Holding, by virtue of its ownership of
AllianceBernstein, would lose its status as a grandfathered publicly traded
partnership and would become subject to income tax as set forth
above.
Item
1B. |
Unresolved
Staff Comments
|
Neither
AllianceBernstein nor Holding has unresolved comments from the staff of the
SEC
to report.
Our
principal executive offices at 1345 Avenue of the Americas, New York, New York
are occupied pursuant to a lease which extends until 2029. We currently occupy
approximately 837,270 square feet of space at this location. We also occupy
approximately 226,374 square feet of space at 135 West 50th Street, New York,
New York under a lease expiring in 2029 and approximately 210,756 square feet
of
space at One North Lexington, White Plains, New York under a lease expiring
in
2031. AllianceBernstein Investments and Investor Services occupy approximately
134,261 square feet of space in Secaucus, New Jersey, and approximately 92,067
square feet of space in San Antonio, Texas, under leases expiring in 2007 and
2009, respectively. We exercised an early lease termination option, effective
2007, for Secaucus, New Jersey; that lease originally expired in
2016.
We
also
lease space in 19 other cities in the United States. Our subsidiaries and joint
ventures lease space in London, England under leases expiring in 2013, 2015,
and
2016, in Tokyo, Japan under leases expiring in 2009, and in 23 other cities
outside the United States.
Item
3. |
Legal
Proceedings
|
With
respect to all significant litigation matters, we conduct a probability
assessment of the likelihood of a negative outcome. If we determine the
likelihood of a negative outcome is probable, and the amount of the loss can
be
reasonably estimated, we record an estimated loss for the expected outcome
of
the litigation as required by Statement of Financial Accounting Standards
No. 5 (“SFAS No. 5”), “Accounting
for Contingencies”,
and
Financial Accounting Standards Board (“FASB”) Interpretation No. 14,
“Reasonable
Estimation of the Amount of a Loss - an interpretation of FASB Statement
No. 5”.
If the
likelihood of a negative outcome is reasonably possible and we are able to
indicate an estimate of the possible loss or range of loss, we disclose that
fact together with the estimate of the possible loss or range of loss. However,
it is difficult to predict the outcome or estimate a possible loss or range
of
loss because litigation is subject to significant uncertainties, particularly
when plaintiffs allege substantial or indeterminate damages, or when the
litigation is highly complex or broad in scope.
On
April 8, 2002, In
re
Enron Corporation Securities Litigation,
a
consolidated complaint (as subsequently amended, “Enron Complaint”) was filed in
the United States District Court for the Southern District of Texas, Houston
Division, against numerous defendants, including AllianceBernstein, alleging
that AllianceBernstein violated Sections 11 and 15 of the Securities Act with
respect to a registration statement filed by Enron Corp. On January 2, 2007,
the
court issued a final judgment dismissing the Enron Complaint as the allegations
therein pertained to AllianceBernstein. The parties have agreed that there
will
be no appeal.
Market
Timing-related Matters
On
October 2, 2003, a purported class action complaint
entitled
Hindo, et al. v. AllianceBernstein Growth & Income Fund, et
al.
(“Hindo
Complaint”) was filed against AllianceBernstein, Holding, the General Partner,
AXA Financial, the U.S. Funds, the registrants and issuers of those funds,
certain officers of AllianceBernstein (“AllianceBernstein defendants”), and
certain unaffiliated defendants, as well as unnamed Doe defendants. The Hindo
Complaint was filed in the United States District Court for the Southern
District of New York by alleged shareholders of two of the U.S. Funds. The
Hindo
Complaint alleges that certain of the AllianceBernstein defendants failed to
disclose that they improperly allowed certain hedge funds and other unidentified
parties to engage in “late trading” and “market timing” of U.S. Fund securities,
violating Sections 11 and 15 of the Securities Act, Sections 10(b) and
20(a) of the Exchange Act, and Sections 206 and 215 of the Investment
Advisers Act. Plaintiffs seek an unspecified amount of compensatory damages
and
rescission of their contracts with AllianceBernstein, including recovery of
all
fees paid to AllianceBernstein pursuant to such contracts.
Following
October 2, 2003, additional lawsuits making factual allegations generally
similar to those in the Hindo Complaint were filed in various federal and state
courts against AllianceBernstein and certain other defendants. All state court
actions against AllianceBernstein either were voluntarily dismissed or removed
to federal court. On February 20, 2004, the Judicial Panel on Multidistrict
Litigation transferred all federal actions to the United States District Court
for the District of Maryland (“Mutual Fund MDL”). On
September 29, 2004, plaintiffs filed consolidated amended complaints with
respect to four claim types: mutual fund shareholder claims; mutual fund
derivative claims; derivative claims brought on behalf of Holding; and claims
brought under ERISA by participants in the Profit Sharing Plan for Employees
of
AllianceBernstein. All four complaints included substantially identical factual
allegations, which appear to be based in large part on the SEC Order and the
NYAG AoD.
On
April 21, 2006, AllianceBernstein and attorneys for the plaintiffs in the
mutual fund shareholder claims, mutual fund derivative claims, and ERISA claims
entered into a confidential memorandum of understanding (“MOU”) containing their
agreement to settle these claims. The agreement will be documented by a
stipulation of settlement and will be submitted for court approval at a later
date. The settlement amount ($30 million), which we previously accrued and
disclosed, has been disbursed. The derivative claims brought on behalf of
Holding, in which plaintiffs seek an unspecified amount of damages, remain
pending.
We
intend
to vigorously defend against the lawsuit involving derivative claims brought
on
behalf of Holding. At the present time, we are unable to predict the outcome
or
estimate a possible loss or range of loss in respect of this matter because
of
the inherent uncertainty regarding the outcome of complex litigation, and the
fact that the plaintiffs did not specify an amount of damages sought in their
complaint.
On
April 11, 2005, a complaint entitled
The
Attorney General of the State of West Virginia v. AIM Advisors, Inc., et
al.
(“WVAG
Complaint”) was filed against AllianceBernstein, Holding, and various
unaffiliated defendants. The WVAG Complaint was filed in the Circuit Court
of
Marshall County, West Virginia by the Attorney General of the State of West
Virginia. The WVAG Complaint makes factual allegations generally similar to
those in the Hindo Complaint. On October 19, 2005, the WVAG Complaint was
transferred to the Mutual Fund MDL. On August 30, 2005, the WV Securities
Commissioner signed a Summary Order to Cease and Desist, and Notice of Right
to
Hearing (“Summary Order”) addressed to AllianceBernstein and Holding. The
Summary Order claims that AllianceBernstein and Holding violated the West
Virginia Uniform Securities Act and makes factual allegations generally
similar to those in the SEC Order and NYAG AoD. On January 25, 2006,
AllianceBernstein and Holding moved to vacate the Summary Order. In early
September 2006, the court denied this motion, and the Supreme Court of Appeals
in West Virginia denied our petition for appeal. On September 22, 2006, we
filed
an answer and moved to dismiss the Summary Order with the WV Securities
Commissioner.
We
intend
to vigorously defend against the allegations in the WVAG Complaint and the
Summary Order. At the present time, we are unable to predict the outcome or
estimate a possible loss or range of loss in respect of these matters because
of
the inherent uncertainty regarding the outcome of complex litigation, the fact
that plaintiffs did not specify an amount of damages sought in their complaint,
and the fact that, to date, we have not engaged in settlement
negotiations.
Revenue
Sharing-related Matters
On
June 22, 2004, a purported class action complaint entitled
Aucoin, et al. v. Alliance Capital Management L.P., et al.
(“Aucoin Complaint”) was filed against AllianceBernstein, Holding, the General
Partner, AXA Financial, AllianceBernstein Investments, certain current and
former directors of the U.S. Funds, and unnamed Doe defendants. The Aucoin
Complaint names the U.S. Funds as nominal defendants. The Aucoin Complaint
was
filed in the United States District Court for the Southern District of New
York
by alleged shareholders of the AllianceBernstein Growth & Income Fund.
The Aucoin Complaint alleges, among other things, (i) that certain of the
defendants improperly authorized the payment of excessive commissions and other
fees from U.S. Fund assets to broker-dealers in exchange for preferential
marketing services, (ii) that certain of the defendants misrepresented and
omitted from registration statements and other reports material facts concerning
such payments, and (iii) that certain defendants caused such conduct as
control persons of other defendants. The Aucoin Complaint asserts claims for
violation of Sections 34(b), 36(b) and 48(a) of the Investment Company
Act, Sections 206 and 215 of the Advisers Act, breach of common law fiduciary
duties, and aiding and abetting breaches of common law fiduciary duties.
Plaintiffs seek an unspecified amount of compensatory damages and punitive
damages, rescission of their contracts with AllianceBernstein, including
recovery of all fees paid to AllianceBernstein pursuant to such contracts,
an
accounting of all U.S. Fund-related fees, commissions and soft dollar payments,
and restitution of all unlawfully or discriminatorily obtained fees and
expenses.
On
February 2, 2005, plaintiffs filed a consolidated amended class action
complaint (“Aucoin Consolidated Amended Complaint”) that asserted claims
substantially similar to the Aucoin Complaint and nine additional
subsequently-filed lawsuits. On October 19, 2005, the United States
District Court for the Southern District of New York dismissed each of the
claims set forth in the Aucoin Consolidated Amended Complaint, except for
plaintiffs’ claim under Section 36(b) of the Investment Company Act.
On January 11, 2006, the District Court granted defendants’ motion for
reconsideration and dismissed the remaining Section 36(b) claim. On
May 31, 2006, the District Court denied plaintiffs’ motion for leave to file
their amended complaint. On July 5, 2006, plaintiffs filed a notice of appeal,
which was subsequently withdrawn subject to plaintiffs’ right to reinstate it at
a later date.
We
believe that plaintiffs’ allegations in the Aucoin Consolidated Amended
Complaint are without merit and intend to vigorously defend against these
allegations. At the present time, we are unable to predict the outcome or
estimate a possible loss or range of loss in respect of this matter because
of
the inherent uncertainty regarding the outcome of complex litigation, the fact
that plaintiffs did not specify an amount of damages sought in their complaint,
and the fact that, to date, we have not engaged in settlement
negotiations.
We
are
involved in various other matters, including employee arbitrations, regulatory
inquiries, administrative proceedings, and litigation, some of which allege
material damages. While any proceeding or litigation has the element of
uncertainty, we believe that the outcome of any one of the other lawsuits or
claims that is pending or threatened, or all of them combined, will not have
a
material adverse effect on our results of operations or financial
condition.
Item
4. |
Submission
of Matters to a Vote of Security
Holders
|
Neither
AllianceBernstein nor Holding submitted a matter to a vote of security holders
during the fourth quarter of 2006.
PART II
Item
5. |
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity
Securities
|
Market
for Holding Units and AllianceBernstein Units; Cash
Distributions
Holding
Units trade publicly on the NYSE under the ticker symbol “AB”.
There
is
no established public trading market for AllianceBernstein Units, which are
subject to significant restrictions on transfer. In general, transfers of
AllianceBernstein Units will be allowed only with the written consent of both
AXA Equitable and the General Partner. Generally, neither AXA Equitable nor
the
General Partner will permit any transfer that it believes would create a risk
that AllianceBernstein would be treated as a corporation for tax purposes.
AXA
Equitable and the General Partner have implemented a transfer policy, a copy
of
which you may request from our corporate secretary ([email protected]).
Also,
we have filed the transfer program as Exhibit 10.09 to this
Form 10-K.
Each
of
Holding and AllianceBernstein distributes on a quarterly basis all of its
Available Cash Flow, as defined in the Holding Partnership Agreement and
AllianceBernstein Partnership Agreement, to its unitholders and the General
Partner. For additional information concerning distribution of Available Cash
Flow by Holding, see
Note 2 to Holding’s financial statements in Item 8.
For
additional information concerning distribution of Available Cash Flow by
AllianceBernstein, see
Note 2 to AllianceBernstein’s consolidated financial statements in Item
8.
Holding’s
principal source of income and cash flow is attributable to its limited
partnership interests in AllianceBernstein.
The
tables set forth below provide the distributions of Available Cash Flow made
by
AllianceBernstein and Holding during 2006 and 2005 and the high and low sale
prices of Holding Units on the NYSE during 2006 and 2005:
|
|
Quarters Ended 2006
|
|
|
|
December 31
|
|
September 30
|
|
June 30
|
|
March 31
|
|
|
|
|
|
|
|
|
|
|
|
Cash
distributions per AllianceBernstein Unit(1)
|
|
$
|
1.60
|
|
$
|
0.96
|
|
$
|
0.99
|
|
$
|
0.87
|
|
Cash
distributions per Holding Unit(1)
|
|
$
|
1.48
|
|
$
|
0.87
|
|
$
|
0.89
|
|
$
|
0.78
|
|
Holding
Unit prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
82.92
|
|
$
|
71.03
|
|
$
|
72.11
|
|
$
|
66.60
|
|
Low
|
|
$
|
68.27
|
|
$
|
56.10
|
|
$
|
55.50
|
|
$
|
56.12
|
|
|
|
Quarters Ended 2005
|
|
|
|
December 31
|
|
September 30
|
|
June 30
|
|
March 31
|
|
|
|
|
|
|
|
|
|
|
|
Cash
distributions per AllianceBernstein Unit(1)
|
|
$
|
1.12
|
|
$
|
0.82
|
|
$
|
0.76
|
|
$
|
0.63
|
|
Cash
distributions per Holding Unit(1)
|
|
$
|
1.02
|
|
$
|
0.74
|
|
$
|
0.68
|
|
$
|
0.56
|
|
Holding
Unit prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
58.46
|
|
$
|
48.39
|
|
$
|
47.75
|
|
$
|
49.90
|
|
Low
|
|
$
|
46.00
|
|
$
|
43.65
|
|
$
|
42.35
|
|
$
|
40.25
|
|
____________
(1)
|
Declared
and paid during the following
quarter.
|
On
January 31, 2007, the closing price of Holding Units on the NYSE was $90.09
per Unit and there were approximately 1,106 Holding Unitholders of record for
approximately 90,000 beneficial owners. On January 31, 2007, there were
approximately 512 AllianceBernstein Unitholders of record, and we do not believe
there are substantial additional beneficial owners.
Recent
Sales of Unregistered Securities; Use of Proceeds from Registered
Securities
As
reported in our Form 10-Q for the quarter ended March 31, 2005, on
February 25, 2005 and April 1, 2004, we allocated 131,873 and 262,510
Holding Units, respectively, with aggregate values of $5,538,640 and $9,191,996,
respectively, for the benefit of certain of our employees under an employee
award plan. An exemption from registration under Section 4(2) of the
Securities Act was available for the allocation of the Holding Units because
such transactions did not involve a public offering.
Purchases
of Equity Securities by the Issuer and Affiliated
Purchasers
The
following table provides information relating to any Holding Units bought by
us
or one of our affiliates in the fourth quarter of the fiscal year covered by
this report:
Issuer
Purchases of Equity Securities
Period
|
|
(a)
Total Number
of Holding Units
Purchased
|
|
(b)
Average Price
Paid
Per Holding
Unit, net of
Commissions
|
|
(c)
Total Number of
Holding Units
Purchased as
Part of Publicly
Announced Plans
or Programs
|
|
(d)
Maximum
Number
(or Approximate
Dollar Value) of
Holding Units that
May Yet Be
Purchased Under
the Plans or
Programs
|
|
10/1/06-10/31/06(1)
|
|
|
74,405
|
|
$
|
68.99
|
|
|
—
|
|
|
—
|
|
11/1/06-11/30/06
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
12/1/06-12/31/06(2)
|
|
|
40,642
|
|
|
76.98
|
|
|
—
|
|
|
—
|
|
Total
|
|
|
115,047
|
|
$
|
71.81
|
|
|
—
|
|
|
—
|
|
___________
(1)
|
On
October 2, 2006, we purchased these Holding Units from employees
to allow
them to fulfill statutory withholding tax requirements at the time
of
distribution of deferred compensation awards.
|
(2)
|
On
December 1, 2006, we purchased these Holding Units from employees to
allow them to fulfill statutory withholding tax requirements at the
time
of distribution of deferred compensation
awards.
|
The
following table provides information relating to any AllianceBernstein Units
bought by us or one of our affiliates in the fourth quarter of the fiscal year
covered by this report:
Issuer
Purchases of Equity Securities
Period
|
|
(a)
Total Number
of
AllianceBernstein
Units Purchased
|
|
(b)
Average Price
Paid Per
AllianceBernstein
Unit, net of
Commissions
|
|
(c)
Total Number of
AllianceBernstein
Units Purchased as
Part of Publicly
Announced Plans
or Programs
|
|
(d)
Maximum
Number
(or Approximate
Dollar Value) of
AllianceBernstein
Units that May Yet
Be Purchased
Under the Plans or
Programs
|
|
10/1/06-10/31/06
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
11/1/06-11/30/06
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
12/1/06-12/31/06(1)
|
|
|
1,300
|
|
|
79.70
|
|
|
—
|
|
|
—
|
|
Total
|
|
|
1,300
|
|
$
|
79.70
|
|
|
—
|
|
|
—
|
|
____________
(1)
|
On
December 7, 2006, AXA Financial purchased a total of 1,300
AllianceBernstein Units from two unaffiliated unitholders in private
transactions.
|
Item
6. |
Selected
Financial Data
|
ALLIANCEBERNSTEIN
HOLDING L.P.
Selected
Financial Data
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
|
|
(in
thousands, except per unit amounts)
|
|
INCOME
STATEMENT DATA:
|
|
|
|
Equity
in earnings of AllianceBernstein
|
|
$
|
359,469
|
|
$
|
275,054
|
|
$
|
219,971
|
|
$
|
100,424
|
|
$
|
183,695
|
|
Income
taxes
|
|
|
34,473
|
|
|
26,990
|
|
|
24,798
|
|
|
21,819
|
|
|
21,653
|
|
Net
income
|
|
$
|
324,996
|
|
$
|
248,064
|
|
$
|
195,173
|
|
$
|
78,605
|
|
$
|
162,042
|
|
Basic
net income per unit
|
|
$
|
3.85
|
|
$
|
3.04
|
|
$
|
2.45
|
|
$
|
1.02
|
|
$
|
2.14
|
|
Diluted
net income per unit
|
|
$
|
3.82
|
|
$
|
3.02
|
|
$
|
2.43
|
|
$
|
1.01
|
|
$
|
2.11
|
|
CASH
DISTRIBUTIONS PER UNIT(1)
|
|
$
|
4.02
|
|
$
|
3.00
|
|
$
|
2.01
|
|
$
|
1.45
|
|
$
|
2.15
|
|
BALANCE
SHEET DATA AT PERIOD END:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
1,568,034
|
|
$
|
1,377,054
|
|
$
|
1,303,446
|
|
$
|
1,166,097
|
|
$
|
1,237,546
|
|
Partners’
capital
|
|
$
|
1,559,188
|
|
$
|
1,368,846
|
|
$
|
1,295,670
|
|
$
|
1,158,606
|
|
$
|
1,230,543
|
|
____________
(1)
|
Holding
is required to distribute all of its Available Cash Flow, as defined
in
the Holding Partnership Agreement, to its
unitholders.
|
Selected
Consolidated Financial Data
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
2005(1)
|
|
2004(1)
|
|
2003(1)
|
|
2002(1)
|
|
|
|
(in
thousands, except per unit amounts and unless otherwise
indicated)
|
|
|
|
|
|
INCOME
STATEMENT DATA:
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
advisory and services fees
|
|
$
|
2,890,229
|
|
$
|
2,259,392
|
|
$
|
1,996,819
|
|
$
|
1,769,562
|
|
$
|
1,724,962
|
|
Distribution
revenues
|
|
|
421,045
|
|
|
397,800
|
|
|
447,283
|
|
|
436,037
|
|
|
467,463
|
|
Institutional
research services
|
|
|
375,075
|
|
|
352,757
|
|
|
420,141
|
|
|
380,705
|
|
|
417,824
|
|
Dividend
and interest income
|
|
|
266,520
|
|
|
152,781
|
|
|
72,743
|
|
|
37,841
|
|
|
52,024
|
|
Investment
gains (losses)
|
|
|
53,134
|
|
|
28,631
|
|
|
14,499
|
|
|
12,408
|
|
|
(6,933
|
)
|
Other
revenues
|
|
|
132,237
|
|
|
117,227
|
|
|
136,744
|
|
|
148,790
|
|
|
154,323
|
|
Total
revenues
|
|
|
4,138,240
|
|
|
3,308,588
|
|
|
3,088,229
|
|
|
2,785,343
|
|
|
2,809,663
|
|
Less:
interest expense
|
|
|
187,833
|
|
|
95,863
|
|
|
32,796
|
|
|
20,415
|
|
|
31,939
|
|
Net
revenues
|
|
|
3,950,407
|
|
|
3,212,725
|
|
|
3,055,433
|
|
|
2,764,928
|
|
|
2,777,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
compensation and benefits
|
|
|
1,547,627
|
|
|
1,262,198
|
|
|
1,085,163
|
|
|
914,529
|
|
|
907,075
|
|
Promotion
and servicing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution
plan payments
|
|
|
292,886
|
|
|
291,953
|
|
|
374,184
|
|
|
370,575
|
|
|
392,780
|
|
Amortization
of deferred sales commissions
|
|
|
100,370
|
|
|
131,979
|
|
|
177,356
|
|
|
208,565
|
|
|
228,968
|
|
Other
|
|
|
218,944
|
|
|
198,004
|
|
|
202,327
|
|
|
197,079
|
|
|
228,624
|
|
General
and administrative
|
|
|
583,296
|
|
|
384,339
|
|
|
426,389
|
|
|
339,706
|
|
|
329,059
|
|
Interest
on borrowings
|
|
|
23,124
|
|
|
25,109
|
|
|
24,232
|
|
|
25,286
|
|
|
27,385
|
|
Amortization
of intangible assets
|
|
|
20,710
|
|
|
20,700
|
|
|
20,700
|
|
|
20,700
|
|
|
20,700
|
|
Charge
for mutual fund matters and legal proceedings
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
330,000
|
|
|
—
|
|
|
|
|
2,786,957
|
|
|
2,314,282
|
|
|
2,310,351
|
|
|
2,406,440
|
|
|
2,134,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
1,163,450
|
|
|
898,443
|
|
|
745,082
|
|
|
358,488
|
|
|
643,133
|
|
Non-operating
income
|
|
|
20,196
|
|
|
34,446
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Income
before income taxes
|
|
|
1,183,646
|
|
|
932,889
|
|
|
745,082
|
|
|
358,488
|
|
|
643,133
|
|
Income
taxes
|
|
|
75,045
|
|
|
64,571
|
|
|
39,932
|
|
|
28,680
|
|
|
32,155
|
|
Net
income
|
|
$
|
1,108,601
|
|
$
|
868,318
|
|
$
|
705,150
|
|
$
|
329,808
|
|
$
|
610,978
|
|
Basic
net income per unit
|
|
$
|
4.26
|
|
$
|
3.37
|
|
$
|
2.76
|
|
$
|
1.30
|
|
$
|
2.42
|
|
Diluted
net income per unit
|
|
$
|
4.22
|
|
$
|
3.35
|
|
$
|
2.74
|
|
$
|
1.29
|
|
$
|
2.39
|
|
Operating
margin(2)
|
|
|
29.5
|
%
|
|
28.0
|
%
|
|
24.4
|
%
|
|
13.0
|
%
|
|
23.2
|
%
|
CASH
DISTRIBUTIONS PER UNIT(3)
|
|
$
|
4.42
|
|
$
|
3.33
|
|
$
|
2.40
|
|
$
|
1.65
|
|
$
|
2.44
|
|
BALANCE
SHEET DATA AT PERIOD END:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
10,601,105
|
|
$
|
9,490,480
|
|
$
|
8,779,330
|
|
$
|
8,171,669
|
|
$
|
7,217,970
|
|
Debt
|
|
$
|
334,901
|
|
$
|
407,291
|
|
$
|
407,517
|
|
$
|
405,327
|
|
$
|
426,907
|
|
Partners’
capital
|
|
$
|
4,570,997
|
|
$
|
4,302,674
|
|
$
|
4,183,698
|
|
$
|
3,778,469
|
|
$
|
3,963,451
|
|
ASSETS
UNDER MANAGEMENT AT PERIOD END (in millions)
|
|
$
|
716,895
|
|
$
|
578,552
|
|
$
|
538,764
|
|
$
|
477,267
|
|
$
|
388,743
|
|
____________
(1)
|
Certain
prior-year amounts have been reclassified to conform to our 2006
presentation. See
Note 2 to AllianceBernstein’s consolidated financial statements in Item
8
for a discussion of
reclassifications.
|
(2)
|
Operating
income as a percentage of net
revenues.
|
(3)
|
AllianceBernstein
is required to distribute all of its Available Cash Flow, as defined
in
the AllianceBernstein Partnership Agreement, to its unitholders and
the
General Partner.
|
Item
7. |
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
Holding
Holding’s
principal source of income and cash flow is attributable to its investment
in
AllianceBernstein limited partnership interests. The Holding financial
statements and notes and management’s discussion and analysis of financial
condition and results of operations (“MD&A”) should be read in conjunction
with those of AllianceBernstein.
Results
of Operations
|
|
Years Ended December 31,
|
|
% Change
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006-05
|
|
2005-04
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AllianceBernstein
net income
|
|
$
|
1,108,601
|
|
$
|
868,318
|
|
$
|
705,150
|
|
|
27.7
|
%
|
|
23.1
|
%
|
Weighted
average equity ownership interest
|
|
|
32.4
|
%
|
|
31.7
|
%
|
|
31.2
|
%
|
|
|
|
|
|
|
Equity
in earnings of AllianceBernstein
|
|
$
|
359,469
|
|
$
|
275,054
|
|
$
|
219,971
|
|
|
30.7
|
|
|
25.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income of Holding
|
|
$
|
324,996
|
|
$
|
248,064
|
|
$
|
195,173
|
|
|
31.0
|
|
|
27.1
|
|
Diluted
net income per Holding Unit
|
|
$
|
3.82
|
|
$
|
3.02
|
|
$
|
2.43
|
|
|
26.5
|
|
|
24.3
|
|
Distribution
per Holding Unit
|
|
$
|
4.02
|
|
$
|
3.00
|
|
$
|
2.01
|
|
|
34.0
|
|
|
49.3
|
|
In
2006,
net income and diluted net income per unit significantly increased from prior
years due to higher equity in earnings of AllianceBernstein. As contemplated
in
our January 24, 2007 earnings announcement, our results have been adjusted
to
reflect the effects of a fourth quarter 2006 charge recorded by
AllianceBernstein for the estimated cost of reimbursing certain clients for
losses arising out of an error made in processing claims for class
action settlement proceeds on behalf of these clients, which include some
AllianceBernstein-sponsored mutual funds (see
AllianceBernstein’s “Consolidated
Results of Operations” in this
Item
7
for a
discussion of the charge). The charge recorded by AllianceBernstein is
somewhat larger than the amount contemplated in the earnings announcement,
and
reflects our identification of additional class actions and client accounts
subject to the claim processing error during an extensive review of our
procedures. Accordingly, net income and diluted net income per unit for 2006
was
$325.0 million and $3.82, respectively, compared to the unadjusted amounts
of
$342.8 million and $4.02, respectively, we reported on January 24, 2007. Our
estimate of the cost is based on our review to date; as we continue our review,
our estimate and the ultimate cost we incur may change. We continue to believe
that most of this cost will ultimately be recovered from residual settlement
proceeds and insurance.
The
fourth quarter distribution of $1.48 per unit paid on February 15, 2007 was
based on unadjusted fourth quarter net income per unit of $1.48 reported on
January 24, 2007. As a result, to the extent all or a portion of the cost is
recovered in subsequent periods, we do not anticipate treating those amounts
as
Available Cash Flow (as defined in the Holding Partnership Agreement), and
would
not distribute those amounts to unitholders.
Capital
Resources and Liquidity
The
following table identifies selected items relating to capital resources and
liquidity:
|
|
Years Ended December 31,
|
|
% Change
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006-05
|
|
2005-04
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners’
capital, as of December 31
|
|
$
|
1,559.2
|
|
$
|
1,368.8
|
|
$
|
1,295.7
|
|
|
13.9
|
%
|
|
5.6
|
%
|
Distributions
received from AllianceBernstein
|
|
|
332.0
|
|
|
253.2
|
|
|
119.8
|
|
|
31.1
|
|
|
111.3
|
|
Distributions
paid to unitholders
|
|
|
(298.5
|
)
|
|
(226.7
|
)
|
|
(95.4
|
)
|
|
31.6
|
|
|
137.6
|
|
Proceeds
from exercise of compensatory options
|
|
|
100.5
|
|
|
42.4
|
|
|
46.7
|
|
|
136.9
|
|
|
(9.2
|
)
|
Investment
in AllianceBernstein
|
|
|
(100.5
|
)
|
|
(42.4
|
)
|
|
(46.7
|
)
|
|
136.9
|
|
|
(9.2
|
)
|
Purchase
of units by AllianceBernstein
|
|
|
(22.3
|
)
|
|
(33.3
|
)
|
|
(45.1
|
)
|
|
(32.8
|
)
|
|
(26.2
|
)
|
Issuance
of units
|
|
|
47.2
|
|
|
—
|
|
|
—
|
|
|
n/m
|
|
|
n/m
|
|
Awards
of units by AllianceBernstein
|
|
|
35.3
|
|
|
35.0
|
|
|
35.7
|
|
|
0.8
|
|
|
(1.9
|
)
|
Available
cash flow
|
|
|
340.3
|
|
|
245.4
|
|
|
161.1
|
|
|
38.7
|
|
|
52.3
|
|
Cash
and
cash equivalents were zero as of December 31, 2006, $89,000 as of December
31, 2005, and zero as of December 31, 2004. Cash inflows from
AllianceBernstein distributions received were offset by cash distributions
paid
to unitholders and income taxes paid. Holding is required to distribute all
of
its Available Cash Flow, as defined in the Holding Partnership Agreement, to
its
unitholders (including the General Partner). Management believes that the cash
flow realized from its investment in AllianceBernstein will provide Holding
with
the resources to meet its financial obligations. See
“Statements of Changes in Partners’ Capital and Comprehensive Income” and
“Statements of Cash Flows” in Holding’s financial statements in Item
8.
Commitments
and Contingencies
See
Note 6 to the Holding financial statements in
Item 8.
Executive
Overview
We
were
quite pleased with our 2006 full year results. Our firm’s organic growth rate,
as measured by net new client cash inflows, was very strong. We ended the year
with record AUM of $716.9 billion, an increase of 23.9% from year-end 2005,
as
market appreciation, investment performance, and net inflows contributed $138.3
billion to AUM. Capital markets produced strong gains, driven by a growing
global economy and robust corporate earnings. All four major U.S. capital market
indices were up significantly, with equity indices posting their strongest
year
since 2003. The S&P 500’s gain of 15.8% for the year was more than 500 basis
points ahead of its 15-year average. Non-U.S. capital markets also had an
outstanding year. The three major MSCI indices posted twelve-month returns
ranging from 20.1% to 32.2%.
In
terms
of relative performance, our value equity services generally continued to
outperform benchmarks, while our fixed income services achieved substantial
investment performance improvement. The one-, three-, and five-year relative
returns in our value equities were quite strong, and, in certain cases,
outstanding. Within our fixed income services, we generally performed above
benchmarks for our institutional clients and above Lipper averages for our
retail clients, as our investments in research, analytical tools, and portfolio
construction continue to benefit these clients.
In
our
growth equity services, performance materially lagged their respective
benchmarks for the year, especially in the U.S. However, we believe the gap
in
valuation between growth and value equities has reached a point where continued
market underperformance by growth relative to value appears unlikely and that
our growth services are well-positioned to benefit from an improvement in the
relative performance of growth equities.
Institutional
Investment Services AUM was $455.1 billion at year end, or 63.5% of our overall
AUM. For the year, we achieved record net inflows of more than $27.3 billion.
Our value equity and blend strategies services accounted for roughly 71% of
new
assets, while global and international services accounted for approximately
85%
of all new assets - continuing a trend. Our pipeline of won but unfunded new
institutional mandates at year-end 2006 remains strong.
Retail
Services AUM was up 15.0% for the year, representing $166.9 billion, or 23.3%
of
our total AUM. Net inflows were $12.1 billion (compared to $1.1 billion of
net
inflows in 2005), for an organic growth rate of 8.4%, which was our best year
since 2000. Significant increases in net asset inflows occurred in our global
and international and multi-strategy services. Lastly, 2006 marked the first
year of net inflows for U.S. retail mutual funds since 2001.
Private
Client Services AUM was $94.9 billion, or 13.2% of our total AUM. AUM of our
high-net-worth clients grew by 26.7% year-over-year, primarily as a result
of
double-digit organic growth and market appreciation. We continued to invest
in
our Private Client Services in 2006, including the opening of our U.K. office
and increasing the number of financial advisors by 37, or 14.2%, to
298.
Our
Institutional Research Services recorded revenues of $375.1 million in 2006,
a
6.3% increase from 2005. However, after adjusting for a reclassification of
transaction fees related to advisory clients, revenues were up 16.2%. Our market
share improved in the U.S. primarily due to strong growth in algorithmic trading
volumes and increased demand for our highly-ranked research services. These
gains, however, were partly offset by pricing pressure and a shift in mix to
“low-touch” trading services with lower revenue yields. We also achieved market
share gains in Europe, where we plan to launch our algorithmic trading platform
in the first quarter of 2007.
The
quality of our Institutional Research Services, as ranked in the 2006
Institutional
Investor “Best
U.S. Independents” survey, was once again excellent. Our research analysts were
ranked in 26 sectors, including first place finishes in 23 sectors.
Our
financial success is the result of providing superior service to, and meeting
the investment objectives of, our clients, and we continue to make long-term
investments for the future. Looking ahead, we believe our continued focus on
these objectives will help us achieve our goal of becoming the most admired
investment firm in the world.
Assets
Under Management
Effective
January 1, 2006, we transferred certain client accounts among distribution
channels to reflect changes in the way we service these accounts (shown as
transfers in the tables below).
Assets
under management by distribution channel were as follows:
|
|
As of December 31,
|
|
% Change
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006-05
|
|
2005-04
|
|
|
|
(in
billions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional
Investments
|
|
$
|
455.1
|
|
$
|
358.6
|
|
$
|
311.3
|
|
|
26.9
|
%
|
|
15.2
|
%
|
Retail
|
|
|
166.9
|
|
|
145.1
|
|
|
163.5
|
|
|
15.0
|
|
|
(11.3
|
)
|
Private
Client
|
|
|
94.9
|
|
|
74.9
|
|
|
64.0
|
|
|
26.7
|
|
|
17.1
|
|
Total
|
|
$
|
716.9
|
|
$
|
578.6
|
|
$
|
538.8
|
|
|
23.9
|
|
|
7.4
|
|
Assets
under management by investment service were as follows:
|
|
As of December 31,
|
|
% Change
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006-05
|
|
2005-04
|
|
|
|
(in
billions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growth
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
78.5
|
|
$
|
80.9
|
|
$
|
80.1
|
|
|
(3.0
|
)%
|
|
1.1
|
%
|
Global &
international
|
|
|
95.6
|
|
|
65.3
|
|
|
43.2
|
|
|
46.5
|
|
|
51.0
|
|
|
|
|
174.1
|
|
|
146.2
|
|
|
123.3
|
|
|
19.1
|
|
|
18.6
|
|
Value
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
119.0
|
|
|
106.9
|
|
|
105.5
|
|
|
11.3
|
|
|
1.3
|
|
Global &
international
|
|
|
216.5
|
|
|
131.3
|
|
|
87.1
|
|
|
64.8
|
|
|
50.8
|
|
|
|
|
335.5
|
|
|
238.2
|
|
|
192.6
|
|
|
40.8
|
|
|
23.7
|
|
Fixed
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
109.9
|
|
|
108.5
|
|
|
143.2
|
|
|
1.3
|
|
|
(24.2
|
)
|
Global &
international
|
|
|
67.1
|
|
|
55.6
|
|
|
50.2
|
|
|
20.7
|
|
|
10.8
|
|
|
|
|
177.0
|
|
|
164.1
|
|
|
193.4
|
|
|
7.9
|
|
|
(15.1
|
)
|
Index/Structured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
24.8
|
|
|
25.3
|
|
|
23.6
|
|
|
(1.6
|
)
|
|
6.9
|
|
Global &
international
|
|
|
5.5
|
|
|
4.8
|
|
|
5.9
|
|
|
13.5
|
|
|
(18.1
|
)
|
|
|
|
30.3
|
|
|
30.1
|
|
|
29.5
|
|
|
0.9
|
|
|
1.9
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
332.2
|
|
|
321.6
|
|
|
352.4
|
|
|
3.3
|
|
|
(8.8
|
)
|
Global &
international
|
|
|
384.7
|
|
|
257.0
|
|
|
186.4
|
|
|
49.7
|
|
|
37.9
|
|
Total
|
|
$
|
716.9
|
|
$
|
578.6
|
|
$
|
538.8
|
|
|
23.9
|
|
|
7.4
|
|
Changes
in assets under management during 2006 were as follows:
|
|
Distribution Channel
|
|
Investment Service
|
|
|
|
Institutional
Investments
|
|
Retail
|
|
Private
Client
|
|
Total
|
|
Growth
Equity
|
|
Value
Equity
|
|
Fixed
Income
|
|
Index/
Structured
|
|
Total
|
|
|
|
(in
billions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2006
|
|
$
|
358.6
|
|
$
|
145.1
|
|
$
|
74.9
|
|
$
|
578.6
|
|
$
|
146.2
|
|
$
|
238.2
|
|
$
|
164.1
|
|
$
|
30.1
|
|
$
|
578.6
|
|
Long-term
flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/new
accounts
|
|
|
53.8
|
|
|
44.3
|
|
|
14.4
|
|
|
112.5
|
|
|
33.9
|
|
|
54.8
|
|
|
22.8
|
|
|
1.0
|
|
|
112.5
|
|
Redemptions/terminations
|
|
|
(18.1
|
)
|
|
(31.1
|
)
|
|
(2.9
|
)
|
|
(52.1
|
)
|
|
(17.5
|
)
|
|
(15.9
|
)
|
|
(15.5
|
)
|
|
(3.2
|
)
|
|
(52.1
|
)
|
Cash
flow/unreinvested dividends
|
|
|
(8.4
|
)
|
|
(1.1
|
)
|
|
(3.1
|
)
|
|
(12.6
|
)
|
|
(2.6
|
)
|
|
(7.4
|
)
|
|
(0.5
|
)
|
|
(2.1
|
)
|
|
(12.6
|
)
|
Net
long-term inflows (outflows)
|
|
|
27.3
|
|
|
12.1
|
|
|
8.4
|
|
|
47.8
|
|
|
13.8
|
|
|
31.5
|
|
|
6.8
|
|
|
(4.3
|
)
|
|
47.8
|
|
Acquisition
|
|
|
0.3
|
|
|
0.1
|
|
|
—
|
|
|
0.4
|
|
|
0.3
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.4
|
|
Transfers
|
|
|
7.9
|
|
|
(9.1
|
)
|
|
1.2
|
|
|
—
|
|
|
(0.8
|
)
|
|
0.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Market
appreciation
|
|
|
61.0
|
|
|
18.7
|
|
|
10.4
|
|
|
90.1
|
|
|
14.6
|
|
|
65.0
|
|
|
6.0
|
|
|
4.5
|
|
|
90.1
|
|
Net
change
|
|
|
96.5
|
|
|
21.8
|
|
|
20.0
|
|
|
138.3
|
|
|
27.9
|
|
|
97.3
|
|
|
12.9
|
|
|
0.2
|
|
|
138.3
|
|
Balance
as of December 31, 2006
|
|
$
|
455.1
|
|
$
|
166.9
|
|
$
|
94.9
|
|
$
|
716.9
|
|
$
|
174.1
|
|
$
|
335.5
|
|
$
|
177.0
|
|
$
|
30.3
|
|
$
|
716.9
|
|
Changes
in assets under management during 2005 were as follows:
|
|
Distribution Channel
|
|
Investment Service
|
|
|
|
Institutional
Investments
|
|
Retail
|
|
Private
Client
|
|
Total
|
|
Growth
Equity
|
|
Value
Equity
|
|
Fixed
Income
|
|
Index/
Structured
|
|
Total
|
|
|
|
(in
billions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2005
|
|
$
|
311.3
|
|
$
|
163.5
|
|
$
|
64.0
|
|
$
|
538.8
|
|
$
|
123.3
|
|
$
|
192.6
|
|
$
|
193.4
|
|
$
|
29.5
|
|
$
|
538.8
|
|
Long-term
flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/new
accounts
|
|
|
39.5
|
|
|
30.4
|
|
|
10.8
|
|
|
80.7
|
|
|
27.5
|
|
|
34.6
|
|
|
18.1
|
|
|
0.5
|
|
|
80.7
|
|
Redemptions/terminations
|
|
|
(19.2
|
)
|
|
(27.5
|
)
|
|
(2.8
|
)
|
|
(49.5
|
)
|
|
(16.6
|
)
|
|
(12.8
|
)
|
|
(18.0
|
)
|
|
(2.1
|
)
|
|
(49.5
|
)
|
Cash
flow/unreinvested dividends
|
|
|
(0.6
|
)
|
|
(1.8
|
)
|
|
(1.3
|
)
|
|
(3.7
|
)
|
|
(3.6
|
)
|
|
—
|
|
|
(0.4
|
)
|
|
0.3
|
|
|
(3.7
|
)
|
Net
long-term inflows (outflows)
|
|
|
19.7
|
|
|
1.1
|
|
|
6.7
|
|
|
27.5
|
|
|
7.3
|
|
|
21.8
|
|
|
(0.3
|
)
|
|
(1.3
|
)
|
|
27.5
|
|
Dispositions
|
|
|
(1.3
|
)
|
|
(28.7
|
)
|
|
(0.4
|
)
|
|
(30.4
|
)
|
|
(1.2
|
)
|
|
—
|
|
|
(29.2
|
)
|
|
—
|
|
|
(30.4
|
)
|
Transfers
|
|
|
0.6
|
|
|
—
|
|
|
(0.6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Market
appreciation
|
|
|
28.3
|
|
|
9.2
|
|
|
5.2
|
|
|
42.7
|
|
|
16.8
|
|
|
23.8
|
|
|
0.2
|
|
|
1.9
|
|
|
42.7
|
|
Net
change
|
|
|
47.3
|
|
|
(18.4
|
)
|
|
10.9
|
|
|
39.8
|
|
|
22.9
|
|
|
45.6
|
|
|
(29.3
|
)
|
|
0.6
|
|
|
39.8
|
|
Balance
as of December 31, 2005
|
|
$
|
358.6
|
|
$
|
145.1
|
|
$
|
74.9
|
|
$
|
578.6
|
|
$
|
146.2
|
|
$
|
238.2
|
|
$
|
164.1
|
|
$
|
30.1
|
|
$
|
578.6
|
|
Average
assets under management by distribution channel and investment service were
as
follows:
|
|
Years Ended December 31,
|
|
% Change
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006-05
|
|
2005-04
|
|
|
|
(in
billions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution
Channel:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional
Investments
|
|
$
|
405.6
|
|
$
|
325.9
|
|
$
|
275.9
|
|
|
24.4
|
%
|
|
18.1
|
%
|
Retail
|
|
|
150.8
|
|
|
146.7
|
|
|
156.1
|
|
|
2.8
|
|
|
(6.0
|
)
|
Private
Client
|
|
|
84.6
|
|
|
68.6
|
|
|
57.6
|
|
|
23.5
|
|
|
18.9
|
|
Total
|
|
$
|
641.0
|
|
$
|
541.2
|
|
$
|
489.6
|
|
|
18.4
|
|
|
10.5
|
|
|
|
Years Ended December 31,
|
|
% Change
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006-05
|
|
2005-04
|
|
|
|
(in
billions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Service:
|
|
|
|
|
|
|
|
|
|
|
|
Growth
Equity
|
|
$
|
160.2
|
|
$
|
128.4
|
|
$
|
118.9
|
|
|
24.8
|
%
|
|
7.9
|
%
|
Value
Equity
|
|
|
281.1
|
|
|
208.9
|
|
|
163.0
|
|
|
34.6
|
|
|
28.2
|
|
Fixed
Income
|
|
|
169.2
|
|
|
174.5
|
|
|
179.6
|
|
|
(3.1
|
)
|
|
(2.9
|
)
|
Index/Structured
|
|
|
30.5
|
|
|
29.4
|
|
|
28.1
|
|
|
3.8
|
|
|
4.8
|
|
Total
|
|
$
|
641.0
|
|
$
|
541.2
|
|
$
|
489.6
|
|
|
18.4
|
|
|
10.5
|
|
Consolidated
Results of Operations
|
|
Years
Ended December 31,
|
|
%
Change
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006-05
|
|
2005-04
|
|
|
|
(in
millions, except per unit amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$
|
3,950.4
|
|
$
|
3,212.7
|
|
$
|
3,055.4
|
|
|
23.0
|
%
|
|
5.1
|
%
|
Expenses
|
|
|
2,786.9
|
|
|
2,314.3
|
|
|
2,310.3
|
|
|
20.4
|
|
|
0.2
|
|
Operating
income
|
|
|
1,163.5
|
|
|
898.4
|
|
|
745.1
|
|
|
29.5
|
|
|
20.6
|
|
Non-operating
income
|
|
|
20.2
|
|
|
34.5
|
|
|
—
|
|
|
(41.4
|
)
|
|
n/m
|
|
Income
before income taxes
|
|
|
1,183.7
|
|
|
932.9
|
|
|
745.1
|
|
|
26.9
|
|
|
25.2
|
|
Income
taxes
|
|
|
75.1
|
|
|
64.6
|
|
|
39.9
|
|
|
16.2
|
|
|
61.7
|
|
Net
income
|
|
$
|
1,108.6
|
|
$
|
868.3
|
|
$
|
705.2
|
|
|
27.7
|
|
|
23.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per unit
|
|
$
|
4.22
|
|
$
|
3.35
|
|
$
|
2.74
|
|
|
26.0
|
|
|
22.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
per unit
|
|
$
|
4.42
|
|
$
|
3.33
|
|
$
|
2.40
|
|
|
32.7
|
|
|
38.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
margin(1)
|
|
|
29.5
|
%
|
|
28.0
|
%
|
|
24.4
|
%
|
|
|
|
|
|
|
____________
(1)
|
Operating
income as a percentage of net
revenues.
|
In
2006,
net income increased $240.3 million, or 27.7%, to $1,108.6 million, and net
income per unit increased $0.87, or 26.0%, to $4.22. The increase was due
primarily to higher investment advisory and services fees, partially offset
by
higher employee compensation and benefits expenses and higher general and
administrative expenses. Our operating margin expanded 1.5% to 29.5% in 2006,
benefiting significantly from the increase in our fee revenues and the
moderation of our employee compensation and benefits growth rate.
As
contemplated in our January 24, 2007 earnings announcement, our results have
been adjusted to include a charge for the estimated cost of reimbursing
certain clients for losses arising out of an error we made in processing
claims for class action settlement proceeds on behalf of these clients, which
include some AllianceBernstein-sponsored mutual funds. The $56.0 million fourth
quarter 2006 pre-tax charge ($54.5 million, net of the related income tax
benefit), recorded as general and administrative expense, is somewhat larger
than the amount contemplated in the earnings announcement, and reflects our
identification of additional class actions and client accounts subject to the
claim processing error during an extensive review of our procedures.
Accordingly, net income and diluted net income per unit for 2006 was $1,108.6
million and $4.22, respectively, compared to the unadjusted amounts of $1,163.1
million and $4.43, respectively, we reported on January 24, 2007. Our estimate
of the cost is based on our review to date; as we continue our review, our
estimate and the ultimate cost we incur may change. We continue to believe
that
most of this cost will ultimately be recovered from residual settlement proceeds
and insurance.
The
fourth quarter distribution of $1.60 per unit paid on February 15, 2007 was
based on unadjusted fourth quarter net income per unit of $1.60. As a result,
to
the extent that all or a portion of the cost is recovered in subsequent periods,
we do not anticipate treating those amounts as Available Cash Flow (as defined
the AllianceBernstein Partnership Agreement), and would not
distribute those amounts to unitholders.
In
2005,
net income increased $163.1 million, or 23.1%, to $868.3 million, and diluted
net income per unit increased $0.61, or 22.3%, to $3.35. The increase was due
primarily to higher investment advisory and services fees, gains recognized
on
the dispositions of our cash management services, Indian mutual funds and South
African joint venture interest, lower promotion and servicing expenses, and
lower general and administrative expenses, partially offset by higher employee
compensation and benefits and lower distribution revenues. The operating margin
increase of 3.6% in 2005 primarily reflects increased revenues and the gains
we
recognized on the dispositions, together with virtually no expense
growth.
Net
Revenues
The
following table summarizes the components of net revenues:
|
|
Years Ended December 31,
|
|
%
Change
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006-05
|
|
2005-04
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
advisory and services fees:
|
|
|
|
|
|
|
|
|
|
|
|
Institutional
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base
fees
|
|
$
|
1,108.2
|
|
$
|
821.3
|
|
$
|
691.8
|
|
|
34.9
|
%
|
|
18.7
|
%
|
Performance
fees
|
|
|
113.0
|
|
|
73.1
|
|
|
35.9
|
|
|
54.7
|
|
|
103.5
|
|
|
|
|
1,221.2
|
|
|
894.4
|
|
|
727.7
|
|
|
36.5
|
|
|
22.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base
fees
|
|
|
787.5
|
|
|
693.1
|
|
|
728.8
|
|
|
13.6
|
|
|
(4.9
|
)
|
Performance
fees
|
|
|
0.3
|
|
|
0.7
|
|
|
(1.7
|
)
|
|
(56.8
|
)
|
|
n/m
|
|
|
|
|
787.8
|
|
|
693.8
|
|
|
727.1
|
|
|
13.6
|
|
|
(4.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Client:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base
fees
|
|
|
758.8
|
|
|
613.1
|
|
|
483.7
|
|
|
23.8
|
|
|
26.8
|
|
Performance
fees
|
|
|
122.4
|
|
|
58.1
|
|
|
58.4
|
|
|
110.5
|
|
|
(0.4
|
)
|
|
|
|
881.2
|
|
|
671.2
|
|
|
542.1
|
|
|
31.3
|
|
|
23.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base
fees
|
|
|
2,654.5
|
|
|
2,127.5
|
|
|
1,904.3
|
|
|
24.8
|
|
|
11.7
|
|
Performance
fees
|
|
|
235.7
|
|
|
131.9
|
|
|
92.6
|
|
|
78.7
|
|
|
42.6
|
|
|
|
|
2,890.2
|
|
|
2,259.4
|
|
|
1,996.9
|
|
|
27.9
|
|
|
13.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution
revenues
|
|
|
421.1
|
|
|
397.8
|
|
|
447.3
|
|
|
5.8
|
|
|
(11.1
|
)
|
Institutional
research services
|
|
|
375.1
|
|
|
352.8
|
|
|
420.1
|
|
|
6.3
|
|
|
(16.0
|
)
|
Dividend
and interest income
|
|
|
266.5
|
|
|
152.8
|
|
|
72.7
|
|
|
74.4
|
|
|
110.0
|
|
Investment
gains (losses)
|
|
|
53.1
|
|
|
28.6
|
|
|
14.5
|
|
|
85.6
|
|
|
97.5
|
|
Other
revenues
|
|
|
132.2
|
|
|
117.2
|
|
|
136.7
|
|
|
12.8
|
|
|
(14.3
|
)
|
Total
revenues
|
|
|
4,138.2
|
|
|
3,308.6
|
|
|
3,088.2
|
|
|
25.1
|
|
|
7.1
|
|
Less:
Interest expense
|
|
|
187.8
|
|
|
95.9
|
|
|
32.8
|
|
|
95.9
|
|
|
192.3
|
|
Net
revenues
|
|
$
|
3,950.4
|
|
$
|
3,212.7
|
|
$
|
3,055.4
|
|
|
23.0
|
|
|
5.1
|
|
Investment
Advisory and Services Fees
Investment
advisory and services fees, the largest component of our revenues, consist
primarily of base fees. These fees are generally calculated as a percentage
of
the value of assets under management and vary with the type of investment
service, the size of account, and the total amount of assets we manage for
a
particular client. Accordingly, fee income generally increases or decreases
as
average assets under management increase or decrease and is therefore affected
by market appreciation or depreciation, the addition of new client accounts
or
client contributions of additional assets to existing accounts, withdrawals
of
assets from and termination of client accounts, purchases and redemptions of
mutual fund shares, and shifts of assets between accounts or products with
different fee structures.
Certain
investment advisory contracts provide for a performance fee, in addition to
or
in lieu of a base fee. This fee 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. Performance fees are recorded as
revenue at the end of the measurement period and will be higher in favorable
markets and lower in unfavorable markets, which may increase the volatility
and seasonality of our revenues and earnings.
Brokerage
transaction charges earned by SCB LLC and SCBL for certain private client and
institutional investments client transactions
previously recorded as investment advisory and services fees are now recorded
as
Institutional Research Services revenue. Prior period amounts have been
reclassified to conform to the current period’s presentation.
Institutional
investments advisory and services fees increased 36.5% in 2006 as a result
of
increased assets under management, a more favorable fee mix, and an increase
in
performance fees of $39.9 million. The favorable fee mix reflects increases
in
average assets under management in our global and international services of
55.5%, where base fee rates are generally higher than domestic rates. During
2005, institutional investments advisory and services fees increased 22.9%
as a
result of an 18.1% increase in average assets under management, and an increase
in performance fees of $37.2 million.
Retail
investment advisory and services fees increased 13.6% in 2006 due primarily
to
an increase of 30.5% in global and international services average assets under
management, partially offset by the disposition of our cash management services
during the second quarter of 2005. For 2005, these fees decreased 4.6%,
primarily as a result of a 6.0% decrease in average assets under management,
reflecting the disposition of our cash management services.
Private
Client investment advisory and services fees increased 31.3% in 2006 as a result
of higher base fees from increased assets under management and a $64.3 million,
or 110.5%, increase in performance fees, earned largely from our hedge funds.
Private client investment advisory and services fees increased 23.8% in 2005,
primarily as a result of increased assets under management.
Distribution
Revenues
AllianceBernstein
Investments and AllianceBernstein Luxembourg act as distributor and/or placing
agent of company-sponsored mutual funds and receive distribution services fees
from certain of those funds as partial reimbursement of the distribution
expenses they incur. Distribution revenues increased 5.8% in 2006, due primarily
to higher non-U.S. and 529 Plan revenues, partially offset by lower U.S.
revenues and the disposition of our cash management services during the second
quarter of 2005. Distribution revenues decreased 11.1% in 2005, principally
due
to the disposition of our cash management services.
Institutional
Research Services
Institutional
Research Services revenue consists principally of brokerage transaction charges
received for providing in-depth, independent, fundamental research and
brokerage-related services to institutional investors.
SCB earned revenues of approximately $1.8 million in 2006 from brokerage
transactions executed on behalf of AllianceBernstein
(acting on behalf of certain of its U.S. asset management clients that have
authorized AllianceBernstein to use SCB for trade execution), which previously
were reported as investment advisory and services fees.
Since
January 1, 2006, we have reported all
revenues earned by SCB from
brokerage transactions executed for these
clients as Institutional Research Services revenues. Accordingly, we
reclassified $31.5 million and $116.5 million of transaction charge revenue
in
2005 and 2004, respectively, from investment advisory and services fees to
Institutional Research Services to conform to our 2006 presentation.
The
decrease in brokerage transaction charges in 2006 and 2005 is
the
result of our elimination of transaction
charges for most private clients, which was largely offset by increased
investment advisory fees.
Revenues
from Institutional Research Services, excluding the decline in transaction
charges related to the reclassification, increased 16.2% in 2006. U.S. revenues
were higher due to increased market volumes and higher market share, partly
offset by lower pricing. Revenues in London were also higher due to increased
market volumes and higher pricing. Revenues from Institutional Research
Services, excluding the decline in transaction charges related to the
Reclassification, increased 5.8% for 2005 due to higher market share, higher
average daily volumes in both the U.S. and U.K. stock markets and pricing
increases in the U.K., partly offset by pricing declines in the U.S.
Recent
declines in commission rates charged by broker-dealers are likely to continue
and may accelerate. Increasing use of electronic trading systems and algorithmic
trading strategies (which permit investors to execute securities transactions
at
a fraction of typical full-service broker-dealer charges) and pressure exerted
by funds and institutional investors are likely to result in continuing, perhaps
significant, declines in commission rates, which would, in turn, reduce the
revenues generated by our Institutional Research Services. See
“Risk Factors” in Item 1A.
Dividend
and Interest Income and Interest Expense
Dividend
and interest income consists of investment income, interest earned on United
States Treasury Bills and interest earned on collateral given for securities
borrowed from brokers and dealers. Interest
expense includes interest accrued on cash balances in customer accounts and
collateral received for securities loaned. Dividend and interest, net of
interest expense, increased $21.8 million in 2006. The increase was due
primarily to higher mutual fund dividends and increased stock borrowed income
as
a result of higher average customer credit balances and interest rates in
2006.
In
2005, dividend
and interest, net of interest expense, increased $17.0 million
as a
result of higher stock borrowed income and mutual fund dividends.
Investment
Gains (Losses)
In
2006 and 2005, realized and unrealized investment gains (losses) increased
$24.5
million and $14.1 million, respectively. The increases were due primarily to
higher mark-to-market gains on investments related to deferred compensation
plan
obligations.
Other
Revenues
Other
revenues consist of fees earned for transfer agency services provided to our
mutual funds, fees earned for administration and recordkeeping services provided
to our mutual funds and the general accounts of AXA and its subsidiaries, our
equity in the earnings of investments made in limited partnership hedge funds
that we sponsor and manage, and other miscellaneous revenues. Other revenues
increased 12.8% in 2006, primarily due to higher equity earnings. Other revenues
decreased 14.3% in 2005, principally due to lower transfer agency services
fees.
Expenses
The
following table summarizes the components of expenses:
|
|
Years Ended December 31,
|
|
% Change
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006-05
|
|
2005-04
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
compensation and benefits
|
|
$
|
1,547.6
|
|
$
|
1,262.2
|
|
$
|
1,085.1
|
|
|
22.6
|
%
|
|
16.3
|
%
|
Promotion
and servicing
|
|
|
612.2
|
|
|
621.9
|
|
|
753.9
|
|
|
(1.6
|
)
|
|
(17.5
|
)
|
General
and administrative
|
|
|
583.3
|
|
|
384.4
|
|
|
426.4
|
|
|
51.8
|
|
|
(9.9
|
)
|
Interest
|
|
|
23.1
|
|
|
25.1
|
|
|
24.2
|
|
|
(7.9
|
)
|
|
3.6
|
|
Amortization
of intangible assets
|
|
|
20.7
|
|
|
20.7
|
|
|
20.7
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
2,786.9
|
|
$
|
2,314.3
|
|
$
|
2,310.3
|
|
|
20.4
|
|
|
0.2
|
|
Employee
Compensation and Benefits
We
had
4,914 full-time employees as of December 31, 2006 compared to 4,312 in 2005
and 4,100 in 2004. Employee compensation and benefits, which represented
approximately 56%, 55%, and 47% of total expenses in 2006, 2005, and 2004,
respectively, includes base compensation, cash and deferred incentive
compensation, commissions, fringe benefits, and other employment
costs.
In
2006,
base compensation, fringe benefits and other employment costs increased $84.4
million, or 18.5%, primarily as a result of annual merit increases, additional
headcount, and higher fringe benefits reflecting increased compensation levels.
Incentive compensation increased $111.1 million, or 21.0%, primarily due to
higher short-term incentive compensation, reflecting increased headcount and
higher earnings, and higher deferred compensation amortization due to vesting
of
prior-year awards. Commission expense increased $89.9 million, or 32.5%,
reflecting higher sales and revenues.
In
2005,
base compensation, fringe benefits and other employment costs increased $44.5
million, or 10.8%, primarily as a result of annual merit increases and
additional headcount. Incentive compensation increased $89.7 million, or 20.4%,
primarily due to higher short-term incentive compensation reflecting higher
earnings and higher deferred compensation amortization due to vesting of
prior-year awards. Commission expense increased $42.9 million, or 18.3%,
reflecting higher sales and revenues.
Promotion
and Servicing
Promotion
and servicing expenses, which represent approximately 22%, 27%, and 33% of
total
expenses in 2006, 2005, and 2004, respectively, include distribution plan
payments to financial intermediaries for distribution of company-sponsored
mutual funds and cash management services products (in 2005 and 2004) and
amortization of deferred sales commissions paid to financial intermediaries
for
the sale of back-end load shares of our sponsored mutual funds. See
“Capital Resources and Liquidity” in this Item 7 and Notes 11 and 21 to
AllianceBernstein’s consolidated financial statements in Item 8
for a
further discussion of deferred sales commissions and the disposition of cash
management services. Also included in this expense category are costs related
to
travel and entertainment, advertising, promotional materials, and investment
meetings and seminars for financial intermediaries that distribute our mutual
fund products.
Promotion
and servicing expenses decreased 1.6% in 2006 and decreased 17.5% in 2005.
The
decrease in 2006 was primarily due to a $31.6 million decrease in amortization
of deferred sales commissions as a result of lower sales of back-end load
shares, partly offset by higher travel and entertainment and promotional
materials costs. The decrease in 2005 was primarily due to an $82.2 million
decrease in distribution plan payments, largely reflecting the disposition
of
our cash management services during the second quarter of 2005, and a $45.4
million decrease in amortization of deferred sales commissions as a result
of
lower sales of back-end load shares.
General
and Administrative
General
and administrative expenses, which represented approximately 21%, 17%, and
18%
of total expenses in 2006, 2005, and 2004, respectively, are costs related
to
operations, including technology, professional fees, occupancy, communications,
minority interests in consolidated subsidiaries, and similar expenses. General
and administrative expenses increased $198.9 million, or 51.8% in 2006, and
decreased $42.0 million, or 9.9% in 2005.
The
increase in 2006 was primarily due to the charge we recorded for the estimated
cost of reimbursing certain clients for losses arising out of an error we made
in processing claims for class action settlement proceeds on behalf of these
clients (see “Consolidated
Results of Operations” in this
Item
7 for a discussion of the charge), as well as higher occupancy
and legal costs. Occupancy
costs increased as a result of the expansion of certain private client offices
in the U.S., increased office space in New York, and new office space in London
and Hong Kong. Legal costs increased, reflecting our continued efforts to
resolve outstanding litigation in 2006, and the fact that 2005 legal costs
were
substantially offset by an $18.3 million insurance recovery and
a $5.1 million reimbursement of litigation expenses we received in connection
with a securities law claim we brought on behalf of certain clients. Other
increases in general and administrative expenses include higher market data
services and data processing costs.
The
decrease in 2005 was due primarily to lower legal costs as a result of insurance
recoveries, write-offs of obsolete software and leasehold improvements at
vacated facilities in 2004, and the impact of selling a consolidated variable
interest entity effective December 31, 2004.
Interest
on Borrowings
Interest
on our borrowings for 2006 decreased $2.0 million, or 7.9%.
The
decrease in 2006 reflects the retirement of our Senior Notes in August 2006,
partly offset by higher short-term borrowing levels in 2006.
Non-operating
Income
Non-operating
income consists primarily of the gains from the dispositions of our cash
management services, Indian mutual funds, and South African joint venture
interest in 2005. Non-operating income for 2006 decreased $14.3 million, or
41.4
%. See
Note 21 to AllianceBernstein’s consolidated financial statements in Item
8
for information about these dispositions.
Taxes
on Income
AllianceBernstein,
a private limited partnership, is not subject to federal or state corporate
income taxes. However, we are subject to the New York City unincorporated
business tax. Our domestic corporate subsidiaries are subject to federal, state
and local income taxes, and are generally included in the filing of a
consolidated federal income tax return. Separate state and local income tax
returns are filed. Foreign corporate subsidiaries are generally subject to
taxes
in the foreign jurisdictions where they are located.
The
increase in taxes on income in 2006 is primarily due to higher pre-tax earnings,
partially offset by a lower effective tax rate. The increase in 2005 is
primarily due to higher pre-tax earnings and a higher effective tax rate.
Capital
Resources and Liquidity
The
following table identifies selected items relating to capital resources and
liquidity:
|
|
|
|
|
|
|
|
% Change
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006-05
|
|
2005-04
|
|
|
|
(in
millions, except per unit amounts)
|
|
|
|
|
|
As
of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners’
capital
|
|
$
|
4,571.0
|
|
$
|
4,302.7
|
|
$
|
4,183.7
|
|
|
6.2
|
%
|
|
2.8
|
%
|
Cash
and cash equivalents
|
|
|
692.7
|
|
|
654.2
|
|
|
1,061.5
|
|
|
5.9
|
|
|
(38.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from operations
|
|
|
1,204.3
|
|
|
460.1
|
|
|
968.2
|
|
|
161.8
|
|
|
(52.5
|
)
|
Purchases
of investments
|
|
|
(54.8
|
)
|
|
(7.4
|
)
|
|
(27.4
|
)
|
|
642.6
|
|
|
(73.1
|
)
|
Capital
expenditures
|
|
|
(97.1
|
)
|
|
(72.6
|
)
|
|
(57.3
|
)
|
|
33.7
|
|
|
26.6
|
|
Cash
distributions
|
|
|
(1,025.5
|
)
|
|
(800.5
|
)
|
|
(383.0
|
)
|
|
28.1
|
|
|
109.0
|
|
Purchases
of Holding Units
|
|
|
(22.3
|
)
|
|
(33.3
|
)
|
|
(45.1
|
)
|
|
(32.8
|
)
|
|
(26.2
|
)
|
Issuance
of Holding Units
|
|
|
47.2
|
|
|
—
|
|
|
—
|
|
|
n/m
|
|
|
n/m
|
|
Additional
investments by Holding with proceeds from exercise of compensatory
options
to buy Holding Units
|
|
|
100.5
|
|
|
42.4
|
|
|
46.7
|
|
|
136.9
|
|
|
(9.2
|
)
|
Issuance
(repayment) of commercial paper, net
|
|
|
328.1
|
|
|
(0.2
|
)
|
|
(0.1
|
)
|
|
n/m
|
|
|
63.0
|
|
Repayment
of long-term debt
|
|
|
(408.1
|
)
|
|
—
|
|
|
—
|
|
|
n/m
|
|
|
n/m
|
|
Available
cash flow
|
|
|
1,153.4
|
|
|
858.7
|
|
|
613.8
|
|
|
34.3
|
|
|
39.9
|
|
Distributions
per AllianceBernstein Unit
|
|
|
4.42
|
|
|
3.33
|
|
|
2.40
|
|
|
32.7
|
|
|
38.8
|
|
In
2006
and 2005, cash and cash equivalents increased $38.5 million and decreased $407.3
million, respectively. Cash inflows are primarily provided by operations, the
issuance of commercial paper, and the additional investment by Holding with
proceeds from exercise of compensatory options to buy Holding Units. Significant
cash outflows include cash distributions paid to the General Partner and
unitholders, repayment of our Senior Notes, capital expenditures, purchases
of
investments, purchases of Holding Units to fund deferred compensation plans
and
the purchase of the remaining interest in our joint venture in Hong
Kong.
Contingent
Deferred Sales Charge
Our
mutual fund distribution system (the “System”) includes a multi-class share
structure that permits our open-end mutual 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 open-end U.S. Fund 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 sale. For back-end load shares, AllianceBernstein
Investments pays sales commissions to the financial intermediaries at the time
of sale and also receives higher ongoing distribution services fees from the
mutual funds. In addition, investors who redeem 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. 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 $23.7 million, $21.4 million, and $32.9 million, respectively,
totaled approximately $98.7 million, $74.2 million, and $44.6 million
during 2006, 2005, and 2004, respectively.
Debt
and Credit Facilities
Total
available credit, debt outstanding, and weighted average interest rates as
of
December 31, 2006 and 2005 were as follows:
|
|
December 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
Credit
Available
|
|
Debt
Outstanding
|
|
Interest
Rate
|
|
Credit
Available
|
|
Debt
Outstanding
|
|
Interest
Rate
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
notes
|
|
$
|
200.0
|
|
$
|
—
|
|
|
—
|
%
|
$
|
600.0
|
|
$
|
399.7
|
|
|
5.6
|
%
|
Commercial
paper(1)
|
|
|
800.0
|
|
|
334.9
|
|
|
5.3
|
|
|
425.0
|
|
|
—
|
|
|
—
|
|
Revolving
credit facility(1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
375.0
|
|
|
—
|
|
|
—
|
|
Extendible
commercial notes
|
|
|
100.0
|
|
|
—
|
|
|
—
|
|
|
100.0
|
|
|
—
|
|
|
—
|
|
Other
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
n/a
|
|
|
7.6
|
|
|
4.6
|
|
Total
|
|
$
|
1,100.0
|
|
$
|
334.9
|
|
|
5.3
|
|
$
|
1,500.0
|
|
$
|
407.3
|
|
|
5.6
|
|
____________________
(1)
|
Our
revolving credit facility supports our commercial paper program;
amounts
borrowed under the commercial paper program reduce amounts available
for
other purposes under the revolving credit facility on a dollar-for-dollar
basis.
|
In
August 2001, we issued $400 million 5.625% Notes (“Senior Notes”) pursuant
to a shelf registration statement that originally permitted us to issue up
to
$600 million in senior debt securities. The Senior Notes matured in August
2006,
and were retired using cash flow from operations and proceeds from the issuance
of commercial paper. We currently have $200 million available under the shelf
registration statement for future issuances.
In
February 2006, we entered into an $800 million five-year revolving credit
facility with a group of commercial banks and other lenders. The revolving
credit facility is intended to provide back-up liquidity for our commercial
paper program, which we increased from $425 million to $800 million in
May 2006. Under the revolving credit facility, the interest rate, at our
option, is a floating rate generally based upon a defined prime rate, a rate
related to the London Interbank Offered Rate (LIBOR) or the Federal Funds rate.
The revolving credit facility contains covenants which, among other things,
require us to meet certain financial ratios. We were in compliance with the
covenants as of December 31, 2006.
As
of
December 31, 2006, we maintained a $100 million extendible commercial notes
(“ECN”) program as a supplement to our commercial paper program. ECNs are
short-term uncommitted debt instruments that do not require back-up liquidity
support.
In
2006,
SCB LLC entered into four separate uncommitted credit facility agreements with
various banks, each for $100 million. As of December 31, 2006, there were no
amounts outstanding under these credit facilities. During January and February
of 2007, SCB LLC increased three of the agreements to $200 million each and
entered into an additional agreement for $100 million with a new
bank.
Our
substantial capital base and access to public and private debt, at competitive
terms, should provide adequate liquidity for our general business needs.
Management believes that cash flow from operations and the issuance of debt
and
AllianceBernstein Units or Holding Units will provide us with the resources
to
meet our financial obligations.
Off-Balance
Sheet Arrangements and Aggregate Contractual
Obligations
We
have
no off-balance sheet arrangements other than the guarantees and contractual
obligations that are discussed below.
Guarantees
In
February 2002, AllianceBernstein signed a $125 million agreement with
a commercial bank, under which we guaranteed certain obligations in the ordinary
course of business of SCBL. In the event SCBL is unable to meet its obligations
in full when due, AllianceBernstein will pay the obligations within three days
of being notified of SCBL’s failure to pay. This agreement is continuous and
remains in effect until payment in full of any such obligation has been made
by
SCBL. During 2006, we were not required to perform under the agreement and
as of
December 31, 2006 had no liability outstanding in connection with the
agreement.
Aggregate
Contractual Obligations
The
following table summarizes
our
contractual obligations as of December 31, 2006:
|
|
Contractual Obligations
|
|
|
|
Total
|
|
Less than
1
Year
|
|
1-3 Years
|
|
3-5 Years
|
|
More than 5
Years
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
$
|
334.9
|
|
$
|
334.9
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Operating
leases, net of sublease commitments
|
|
|
1,866.9
|
|
|
96.8
|
|
|
192.0
|
|
|
187.9
|
|
|
1,390.2
|
|
Accrued
compensation and benefits
|
|
|
360.6
|
|
|
215.8
|
|
|
79.4
|
|
|
42.7
|
|
|
22.7
|
|
Total
|
|
$
|
2,562.4
|
|
$
|
647.5
|
|
$
|
271.4
|
|
$
|
230.6
|
|
$
|
1,412.9
|
|
Accrued
compensation and benefits amounts above exclude our accrued pension obligation.
Any amounts reflected on the consolidated balance sheet as payables (to
broker-dealers, brokerage clients, and our mutual funds) and accounts payable
and accrued expenses are excluded from the table above.
Certain
of our deferred compensation plans provide for election by participants to
have
their deferred compensation awards invested notionally in Holding Units and
in
company-sponsored investment services. Since January 1, 2007, we have made
purchases of mutual funds and hedge funds totaling $272.3 million to fund our
future obligations resulting from participant elections with respect to 2006
awards. We also allocated Holding Units with an aggregate value of approximately
$36.8 million within our deferred compensation trust to fund our future
obligations that resulted from participant elections with respect to 2006
awards.
We
expect
to make contributions to our qualified profit sharing plan of approximately
$25.0 million in each of the next four years. We currently expect to
contribute an estimated $3.7 million to our qualified, noncontributory, defined
benefit plan during 2007.
Acquisitions
On
May 2,
2006, we purchased the 50% interest in our Hong Kong joint venture (including
its wholly-owned Taiwanese subsidiary) owned by our joint venture partner for
$16.1 million in cash. The effect of this acquisition was not material to our
consolidated financial condition, results of operations or cash
flows.
Dispositions
See
Note 21 to AllianceBernstein’s consolidated financial statements in Item
8
for a
discussion of dispositions.
Contingencies
See
Note 11 to AllianceBernstein’s consolidated financial statements in Item
8
for a
discussion of our mutual fund distribution system and related deferred sales
commission asset and certain legal proceedings to which we are a
party.
Critical
Accounting Estimates
The
preparation of the consolidated financial statements and notes to consolidated
financial statements requires management to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues,
and expenses.
Management
believes that the critical accounting policies and estimates discussed below
involve significant management judgment due to the sensitivity of the methods
and assumptions used.
Deferred
Sales Commission Asset
Management
tests the deferred sales commission asset for recoverability quarterly.
Significant assumptions utilized to estimate the company’s future average assets
under management and undiscounted future cash flows from back-end load shares
include expected future market levels and redemption rates. Market assumptions
are selected using a long-term view of expected average market returns based
on
historical returns of broad market indices. As of December 31, 2006,
management used average market return assumptions of 5% for fixed income and
8%
for equity to estimate annual market returns. Higher actual average market
returns would increase undiscounted future cash flows, while lower actual
average market returns would decrease undiscounted future cash flows. Future
redemption rate assumptions ranged from 24% to 26% for U.S. fund shares and
21%
to 29% for non-U.S. fund shares determined by reference to actual redemption
experience over the five-year, three-year, and one-year periods ended
December 31, 2006, calculated as a percentage of the company’s average
assets under management represented by back-end load shares. An increase in
the
actual rate of redemptions would decrease undiscounted future cash flows, while
a decrease in the actual rate of redemptions would increase undiscounted future
cash flows. These assumptions are reviewed and updated quarterly. Estimates
of
undiscounted future cash flows and the remaining life of the deferred sales
commission asset are made from these assumptions and the aggregate undiscounted
future cash flows are compared to the recorded value of the deferred sales
commission asset. As of December 31, 2006, management determined that the
deferred sales commission asset was not impaired. If management determines
in
the future that the deferred sales commission asset is not recoverable, an
impairment condition would exist and a loss would be measured as the amount
by
which the recorded amount of the asset exceeds its estimated fair value.
Estimated fair value is determined using management’s best estimate of future
cash flows discounted to a present value amount.
Goodwill
As
a
result of the adoption of SFAS No. 142, goodwill is tested at least
annually, as of September 30, for impairment. Significant assumptions are
required in performing goodwill impairment tests. Such tests include determining
whether the estimated fair value of AllianceBernstein, the reporting unit,
exceeds its book value. There are several methods of estimating
AllianceBernstein’s fair value, which includes valuation techniques such as
market quotations and discounted expected cash flows. In developing estimated
fair value using a discounted cash flow valuation technique, business growth
rate assumptions are applied over the estimated life of the goodwill asset
and
the resulting expected cash flows are discounted to arrive at a present value
amount that approximates fair value. These assumptions consider all material
events that have impacted, or that we believe could potentially impact, future
discounted expected cash flows. As of September 30, 2006, the impairment
test indicated that goodwill was not impaired. Also, as of December 31, 2006,
management believes that goodwill was not impaired. However, future tests may
be
based upon different assumptions which may or may not result in an impairment
of
this asset. Any impairment could reduce materially the recorded amount of the
goodwill asset with a corresponding charge to our earnings.
Intangible
Assets
Acquired
intangibles are recognized at fair value and amortized over their estimated
useful lives of twenty years. Intangible assets are evaluated for impairment
quarterly. A present value technique is applied to management’s best estimate of
future cash flows to estimate the fair value of intangible assets. Estimated
fair value is then compared to the recorded book value to determine whether
an
impairment is indicated. The estimates used include estimating attrition factors
of customer accounts, asset growth rates, direct expenses and fee rates. We
choose assumptions based on actual historical trends that may or may not occur
in the future. As of December 31, 2006, management believes that intangible
assets were not impaired. However, future tests may be based upon different
assumptions which may or may not result in an impairment of this asset. Any
impairment could reduce materially the recorded amount of intangible assets
with
a corresponding charge to our earnings.
Retirement
Plan
We
maintain a qualified, noncontributory, defined benefit retirement plan covering
current and former employees who were employed by the company in the United
States prior to October 2, 2000. The amounts recognized in the consolidated
financial statements related to the retirement plan are determined from
actuarial valuations. Inherent in these valuations are assumptions including
expected return on plan assets, discount rates at which liabilities could be
settled, rates of annual salary increases, and mortality rates. The assumptions
are reviewed annually and may be updated to reflect the current environment.
A
summary of the key economic assumptions are described
in Note 14 to AllianceBernstein’s consolidated financial statements in Item
8.
In
accordance with U.S. generally accepted accounting principles, actual results
that differ from those assumed are accumulated and amortized over future periods
and, therefore, affect expense recognized and liabilities recorded in future
periods.
In
developing the expected long-term rate of return on plan assets of 8.0%, we
considered the historical returns and future expectations for returns for each
asset category, as well as the target asset allocation of the portfolio. The
expected long-term rate of return on assets is based on weighted average
expected returns for each asset class. We assumed a target allocation weighting
of 50% to 70% for equity securities, and 20% to 40% for debt securities, and
0%
to 10% for real estate investment trusts. Exposure of the total portfolio to
cash equivalents on average should not exceed 5% of the portfolio’s value on a
market value basis. The plan seeks to provide a rate of return that exceeds
applicable benchmarks over rolling five-year periods. The benchmark for the
plan’s large cap domestic equity investment strategy is the S&P 500 Index;
the small cap domestic equity investment strategy is measured against the
Russell 2000 Index; the international equity investment strategy is measured
against the MSCI EAFE Index; and the fixed income investment strategy is
measured against the Lehman Brothers Aggregate Bond Index. The actual rate
of
return on plan assets was 9.0%, 13.7%, and 9.0% in 2006, 2005, and 2004,
respectively. A 25 basis point adjustment, up or down, in the expected long-term
rate of return on plan assets would have decreased or increased the 2006 net
pension charge of $4.9 million by approximately $0.1 million.
The
objective of our discount rate assumption was to reflect the rate at which
the
pension benefits could be effectively settled. In making this determination,
we
took into account the timing and amount of benefits that would be available
under the plan’s lump sum option. To that effect, our methodology for selecting
the discount rate as of December 31, 2006 was to match the plan’s cash
flows to that of a yield curve that provides the equivalent yields on
zero-coupon corporate bonds for each maturity. Benefit cash flows due in a
particular year can be “settled” theoretically by “investing” them in the
zero-coupon bond that matures in the same year. The discount rate is the single
rate that produces the same present value of cash flows. The selection of the
5.90% discount rate as of December 31, 2006 represents the approximate
mid-point (to the nearest five basis points) of the single rate under two
independently constructed yield curves - one prepared by Mercer Human Resource
Consulting which produced a rate of 5.94%; and one prepared by Citigroup which
produced a rate of 5.89%. The discount rate as of December 31, 2005 was
5.65%, which was used in developing the 2006 net pension charge. A lower
discount rate increases pension expense and the present value of benefit
obligations. A 25 basis point adjustment, up or down, in the discount rate
(along with a corresponding adjustment in the assumed lump sum interest rate)
would have decreased or increased the 2006 net pension charge of $4.9 million
by
approximately $0.6 million.
Loss
Contingencies
Management
continuously reviews with legal counsel the status of regulatory matters and
pending or threatened litigation. We evaluate the likelihood that a loss
contingency exists in accordance with Statement of Financial Accounting
Standards No. 5 (“SFAS No. 5”), “Accounting
for Contingencies”.
SFAS
No. 5 requires a loss contingency to be recorded if it is probable and
reasonably estimable as of the date of the financial statements.
Accounting
Pronouncements
See
Note 22 to AllianceBernstein’s consolidated financial statements in Item
8.
Forward-Looking
Statements
Certain
statements provided by management in this report are “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements are subject to risks,
uncertainties and other factors that could cause actual results to differ
materially from future results expressed or implied by such forward-looking
statements. The most significant of these factors include, but are not limited
to, the following: the performance of financial markets, the investment
performance of sponsored investment products and separately managed accounts,
general economic conditions, future acquisitions, competitive conditions and
government regulations, including changes in tax regulations and rates. We
caution readers to carefully consider such factors. Further, such
forward-looking statements speak only as of the date on which such statements
are made; we undertake no obligation to update any forward-looking statements
to
reflect events or circumstances after the date of such statements. For further
information regarding these forward-looking statements and the factors that
could cause actual results to differ, see
“Risk Factors” in
Item 1A.
Any or
all of the forward-looking statements that we make in this Form 10-K or any
other public statements we issue may turn out to be wrong. It is important
to
remember that other factors besides those listed in “Risk Factors” and those
listed below could also adversely affect our revenues, financial condition,
results of operations, and business prospects.
The
forward-looking statements referred to in the preceding paragraph include
statements regarding the outcome of litigation and the effect on future earnings
of the disposition of our cash management services to Federated
Investors, Inc. (“Disposition”). Litigation is inherently unpredictable,
and excessive damage awards do occur. Though we have stated that we do not
expect certain legal proceedings to have a material adverse effect on our
results of operations or financial condition, any settlement or judgment with
respect to a legal proceeding could be significant, and could have a material
adverse effect on our results of operations or financial condition. The effect
of the Disposition on future earnings, resulting from contingent payments to
be
received in future periods, will depend on the amount of net revenue earned
by
Federated Investors, Inc. during these periods on assets under management
maintained in Federated’s funds by our former cash management clients. The
amount of gain ultimately realized from the Disposition depends on whether
we
receive a final contingent payment payable on the fifth anniversary of the
closing of the transaction (see
Note 21 to AllianceBernstein’s consolidated financial statements in Item
8).
The
forward-looking statements referred to above also include statements regarding
anticipated improvement in the relative performance of growth equities, our
estimate of what it will cost us to reimburse certain of our clients for losses
arising out of an error we made in processing class action claims, and
our ability to recover most of this cost. The actual performance of the capital
markets and other factors beyond our control will affect our investment success
for clients and asset inflows. Our estimate of the cost to reimburse clients
is
based on our review to date; as we continue our review, our
estimate and the ultimate cost we incur may change. Our ability to
recover most of the cost of the error depends, in part, on the availability
of
funds from the related class-action settlement funds, the amount of which is
not
known, and the willingness of our insurers to reimburse us under existing
policies.
Item
7A. |
Quantitative
and Qualitative Disclosures about Market Risk
|
Holding
Market
Risk, Risk Management and Derivative Financial
Instruments
Holding’s
sole investment is AllianceBernstein Units. Holding did not own, nor was it
a
party to any derivative financial instruments during the years ended
December 31, 2006, 2005, and 2004.
Market
Risk, Risk Management and Derivative Financial
Instruments
AllianceBernstein’s
investments consist of investments, trading and available-for-sale, and other
investments. Investments, trading and available-for-sale, include United States
Treasury Bills and equity and fixed income mutual funds investments. Trading
investments are purchased for short-term investment, principally to fund
liabilities related to deferred compensation plans. Although investments,
available-for-sale, are purchased for long-term investment, the portfolio
strategy considers them available-for-sale from time to time due to changes
in
market interest rates, equity prices and other relevant factors. Other
investments include investments in hedge funds sponsored by AllianceBernstein
and other private investment vehicles.
Trading
and Non-Trading Market Risk Sensitive Instruments
Investments
with Interest Rate Risk—Fair Value
The
table
below provides our potential exposure with respect to our fixed income
investments, measured in terms of fair value, to an immediate 100 basis point
increase in interest rates at all maturities from the levels prevailing as
of
December 31, 2006 and 2005. Such a fluctuation in interest rates is a
hypothetical rate scenario used to calibrate potential risk and does not
represent our view of future market changes. While these fair value measurements
provide a representation of interest rate sensitivity of our investments in
fixed income mutual funds and fixed income hedge funds, they are based on our
exposures at a particular point in time and may not be representative of future
market results. These exposures will change as a result of ongoing changes
in
investments in response to our assessment of changing market conditions and
available investment opportunities:
|
|
As of December 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
Fair
Value
|
|
Effect of
+100
Basis Point
Change
|
|
Fair
Value
|
|
Effect of +100
Basis Point
Change
|
|
|
|
(in thousands)
|
|
Fixed
Income Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
|
|
$
|
31,669
|
|
$
|
(1,435
|
)
|
$
|
30,502
|
|
$
|
(1,424
|
)
|
Available-for-sale
and other investments
|
|
|
31,957
|
|
|
(1,448
|
)
|
|
2,537
|
|
|
(118
|
)
|
Investments
with Equity Price Risk—Fair Value
Our
investments also include investments in equity mutual funds and equity hedge
funds. The following table provides our potential exposure with respect to
our
equity investments, measured in terms of fair value, to an immediate 10% drop
in
equity prices from those prevailing as of December 31, 2006 and 2005. A 10%
decrease in equity prices is a hypothetical scenario used to calibrate potential
risk and does not represent our view of future market changes. While these
fair
value measurements provide a representation of equity price sensitivity of
our
investments in equity mutual funds and equity hedge funds, they are based on
our
exposures at a particular point in time and may not be representative of future
market results. These exposures will change as a result of ongoing portfolio
activities in response to our assessment of changing market conditions and
available investment opportunities:
|
|
As of December 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
Fair
Value
|
|
Effect of
-10%
Equity Price
Change
|
|
Fair
Value
|
|
Effect of
-10%
Equity Price
Change
|
|
|
|
(in thousands)
|
|
Equity
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
|
|
$
|
432,133
|
|
$
|
(43,213
|
)
|
$
|
282,719
|
|
$
|
(28,272
|
)
|
Available-for-sale
and other investments
|
|
|
251,844
|
|
|
(25,184
|
)
|
|
115,656
|
|
|
(11,566
|
)
|
Debt—Fair
Value
As
of
December 31, 2006 and 2005, the aggregate fair value of our debt was $335.0
million and $409.7 million, respectively. The table below provides the potential
fair value exposure with respect to our debt to an immediate 100 basis point
decrease in interest rates at all maturities and a ten percent decrease in
exchange rates from those prevailing as of December 31, 2006 and
2005:
|
|
As of December 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
Fair
Value
|
|
Effect
of -100 Basis Point Change
|
|
Effect
of -10% Exchange Rate Change
|
|
Fair
Value
|
|
Effect
of -100 Basis Point Change
|
|
Effect
of -10% Exchange Rate Change
|
|
|
|
(in thousands)
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-trading
|
|
$
|
335,000
|
|
$
|
14,372
|
|
$
|
—
|
|
$
|
409,676
|
|
$
|
18,190
|
|
$
|
760
|
|
Item
8. |
Financial
Statements and Supplementary Data
|
ALLIANCEBERNSTEIN
HOLDING L.P.
Statements
of Financial Condition
|
|
December 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
(in
thousands, except unit amounts)
|
|
ASSETS
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
—
|
|
$
|
89
|
|
Investment
in AllianceBernstein
|
|
|
1,567,733
|
|
|
1,376,503
|
|
Other
assets
|
|
|
301
|
|
|
462
|
|
Total
assets
|
|
$
|
1,568,034
|
|
$
|
1,377,054
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND PARTNERS’ CAPITAL
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Payable
to AllianceBernstein
|
|
$
|
7,149
|
|
$
|
7,197
|
|
Other
liabilities
|
|
|
1,697
|
|
|
1,011
|
|
Total
liabilities
|
|
|
8,846
|
|
|
8,208
|
|
Commitments
and contingencies (See
Note 6)
|
|
|
|
|
|
|
|
Partners’
capital:
|
|
|
|
|
|
|
|
General
Partner: 100,000 general partnership units issued and
outstanding
|
|
|
1,739
|
|
|
1,711
|
|
Limited
partners: 85,568,171 and 82,131,027 limited partnership units issued
and
outstanding
|
|
|
1,546,598
|
|
|
1,359,472
|
|
Accumulated
other comprehensive income
|
|
|
10,851
|
|
|
7,663
|
|
Total
partners’ capital
|
|
|
1,559,188
|
|
|
1,368,846
|
|
Total
liabilities and partners’ capital
|
|
$
|
1,568,034
|
|
$
|
1,377,054
|
|
See
Accompanying Notes to Financial Statements.
ALLIANCEBERNSTEIN
HOLDING L.P.
Statements
of Income
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
(in
thousands, except per unit amounts)
|
|
|
|
|
|
|
|
|
|
Equity
in earnings of AllianceBernstein
|
|
$
|
359,469
|
|
$
|
275,054
|
|
$
|
219,971
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
34,473
|
|
|
26,990
|
|
|
24,798
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
324,996
|
|
$
|
248,064
|
|
$
|
195,173
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per unit:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
3.85
|
|
$
|
3.04
|
|
$
|
2.45
|
|
Diluted
|
|
$
|
3.82
|
|
$
|
3.02
|
|
$
|
2.43
|
|
See
Accompanying Notes to Financial Statements.
ALLIANCEBERNSTEIN
HOLDING L.P.
Statements
of Changes in Partners’ Capital and Comprehensive Income
|
|
General
Partner’s
Capital
|
|
Limited
Partners’
Capital
|
|
Accumulated
Other
Comprehensive Income
|
|
Total
Partners’
Capital
|
|
|
|
(in
thousands, except per unit amounts)
|
|
|
|
|
|
Balance
as of December 31, 2003
|
|
$
|
1,563
|
|
$
|
1,157,043
|
|
$
|
—
|
|
$
|
1,158,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
243
|
|
|
194,930
|
|
|
—
|
|
|
195,173
|
|
Comprehensive
income (loss)
|
|
|
243
|
|
|
194,930
|
|
|
—
|
|
|
195,173
|
|
Cash
distributions to unitholders ($1.19 per unit)
|
|
|
(119
|
)
|
|
(95,326
|
)
|
|
—
|
|
|
(95,445
|
)
|
Purchases
of Holding Units by AllianceBernstein to fund deferred compensation
plans,
net
|
|
|
—
|
|
|
(45,080
|
)
|
|
—
|
|
|
(45,080
|
)
|
Awards
of Holding Units made by AllianceBernstein under deferred compensation
plans, net of forfeitures
|
|
|
—
|
|
|
35,711
|
|
|
—
|
|
|
35,711
|
|
Proceeds
from exercise of compensatory options to buy Holding Units
|
|
|
—
|
|
|
46,705
|
|
|
—
|
|
|
46,705
|
|
Balance
as of December 31, 2004
|
|
|
1,687
|
|
|
1,293,983
|
|
|
—
|
|
|
1,295,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
304
|
|
|
247,760
|
|
|
—
|
|
|
248,064
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on investments, net
|
|
|
—
|
|
|
—
|
|
|
1,253
|
|
|
1,253
|
|
Foreign
currency translation adjustment, net
|
|
|
—
|
|
|
—
|
|
|
6,410
|
|
|
6,410
|
|
Comprehensive
income (loss)
|
|
|
304
|
|
|
247,760
|
|
|
7,663
|
|
|
255,727
|
|
Cash
distributions to unitholders ($2.80 per unit)
|
|
|
(280
|
)
|
|
(226,451
|
)
|
|
—
|
|
|
(226,731
|
)
|
Purchases
of Holding Units by AllianceBernstein to fund deferred compensation
plans,
net
|
|
|
—
|
|
|
(33,253
|
)
|
|
—
|
|
|
(33,253
|
)
|
Awards
of Holding Units made by AllianceBernstein under deferred compensation
plans, net of forfeitures
|
|
|
—
|
|
|
35,028
|
|
|
—
|
|
|
35,028
|
|
Proceeds
from exercise of compensatory options to buy Holding Units
|
|
|
—
|
|
|
42,405
|
|
|
—
|
|
|
42,405
|
|
Balance
as of December 31, 2005
|
|
|
1,711
|
|
|
1,359,472
|
|
|
7,663
|
|
|
1,368,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
384
|
|
|
324,612
|
|
|
—
|
|
|
324,996
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on investments, net
|
|
|
—
|
|
|
—
|
|
|
1,735
|
|
|
1,735
|
|
Foreign
currency translation adjustment, net
|
|
|
—
|
|
|
—
|
|
|
3,718
|
|
|
3,718
|
|
Comprehensive
income (loss)
|
|
|
384
|
|
|
324,612
|
|
|
5,453
|
|
|
330,449
|
|
Adjustment
to initially apply FASB Statement No. 158, net
|
|
|
—
|
|
|
—
|
|
|
(2,265
|
)
|
|
(2,265
|
)
|
Cash
distributions to unitholders ($3.56 per unit)
|
|
|
(356
|
)
|
|
(298,094
|
)
|
|
—
|
|
|
(298,450
|
)
|
Purchases
of Holding Units by AllianceBernstein to fund deferred compensation
plans,
net
|
|
|
—
|
|
|
(22,345
|
)
|
|
—
|
|
|
(22,345
|
)
|
Issuance
of Holding Units in exchange for cash awards made by AllianceBernstein
under the Partners Compensation Plan
|
|
|
—
|
|
|
47,161
|
|
|
—
|
|
|
47,161
|
|
Awards
of Holding Units made by AllianceBernstein under deferred compensation
plans, net of forfeitures
|
|
|
—
|
|
|
35,323
|
|
|
—
|
|
|
35,323
|
|
Proceeds
from exercise of compensatory options to buy Holding Units
|
|
|
—
|
|
|
100,469
|
|
|
—
|
|
|
100,469
|
|
Balance
as of December 31, 2006
|
|
$
|
1,739
|
|
$
|
1,546,598
|
|
$
|
10,851
|
|
$
|
1,559,188
|
|
See
Accompanying Notes to Financial Statements.
ALLIANCEBERNSTEIN
HOLDING L.P.
Statements
of Cash Flows
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
(in
thousands)
|
|
Cash
flows from operating activities:
|
|
|
|
Net
income
|
|
$
|
324,996
|
|
$
|
248,064
|
|
$
|
195,173
|
|
Adjustments
to reconcile net income to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Equity
in earnings of AllianceBernstein
|
|
|
(359,469
|
)
|
|
(275,054
|
)
|
|
(219,971
|
)
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Decrease
in other assets
|
|
|
161
|
|
|
175
|
|
|
118
|
|
(Decrease)
increase in payable to AllianceBernstein
|
|
|
(48
|
)
|
|
(467
|
)
|
|
959
|
|
Increase
(decrease) in other liabilities
|
|
|
686
|
|
|
899
|
|
|
(674
|
)
|
Net
cash used in operating activities
|
|
|
(33,674
|
)
|
|
(26,383
|
)
|
|
(24,395
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Investment
in AllianceBernstein with proceeds from exercise of compensatory
options
to buy Holding Units
|
|
|
(100,469
|
)
|
|
(42,405
|
)
|
|
(46,705
|
)
|
Cash
distributions received from AllianceBernstein
|
|
|
332,035
|
|
|
253,203
|
|
|
119,840
|
|
Net
cash provided by investing activities
|
|
|
231,566
|
|
|
210,798
|
|
|
73,135
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Cash
distributions to unitholders
|
|
|
(298,450
|
)
|
|
(226,731
|
)
|
|
(95,445
|
)
|
Proceeds
from exercise of compensatory options to buy Holding Units
|
|
|
100,469
|
|
|
42,405
|
|
|
46,705
|
|
Net
cash used in financing activities
|
|
|
(197,981
|
)
|
|
(184,326
|
)
|
|
(48,740
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(89
|
)
|
|
89
|
|
|
—
|
|
Cash
and cash equivalents as of beginning of the year
|
|
|
89
|
|
|
—
|
|
|
—
|
|
Cash
and cash equivalents as of end of the year
|
|
$
|
—
|
|
$
|
89
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid:
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
$
|
33,662
|
|
$
|
25,969
|
|
$
|
25,638
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
investing activities:
|
|
|
|
|
|
|
|
|
|
|
Change
in accumulated other comprehensive income
|
|
|
3,188
|
|
|
7,663
|
|
|
—
|
|
Issuance
of Holding Units in exchange for cash awards made by AllianceBernstein
under the Partners Compensation Plan
|
|
|
47,161
|
|
|
—
|
|
|
—
|
|
Awards
of Holding Units made by AllianceBernstein under deferred compensation
plans, net of forfeitures
|
|
|
35,323
|
|
|
35,028
|
|
|
35,711
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
financing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases
of Holding Units by AllianceBernstein to fund deferred compensation
plans,
net
|
|
|
(22,345
|
)
|
|
(33,253
|
)
|
|
(45,080
|
)
|
See
Accompanying Notes to Financial Statements.
ALLIANCEBERNSTEIN
HOLDING L.P.
Notes
to Financial Statements
The
words “we” and “our” refer collectively to AllianceBernstein Holding L.P.
(“Holding”) and AllianceBernstein L.P. and its subsidiaries
(“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.
1. |
Organization
and Business Description
|
Holding’s
principal source of income and cash flow is attributable to its investment
in
AllianceBernstein limited partnership interests.
AllianceBernstein
provides research, diversified investment management and related services
globally to a broad range of clients. Its principal services
include:
|
·
|
Institutional
Investments Services - servicing institutional investors, including
unaffiliated corporate and public employee pension funds, endowment
funds,
domestic and foreign institutions and governments, and affiliates
such as
AXA and certain of its insurance company subsidiaries, by means of
separately managed accounts, sub-advisory relationships, structured
products, group trusts, mutual funds (sponsored by AllianceBernstein
or
our affiliated joint venture companies), and other investment
vehicles.
|
|
·
|
Retail
Services - servicing individual investors, primarily by means of
retail
mutual funds sponsored by AllianceBernstein or our affiliated joint
venture companies, sub-advisory relationships in respect of mutual
funds
sponsored by third parties, separately managed account programs that
are
sponsored by various financial intermediaries worldwide, and other
investment vehicles.
|
|
·
|
Private
Client Services - servicing 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.
|
|
·
|
Institutional
Research Services - servicing institutional investors desiring
institutional research services including in-depth, independent,
fundamental research, portfolio strategy, trading, and brokerage-related
services.
|
AllianceBernstein
also provides distribution, shareholder servicing, and administrative services
to its sponsored mutual funds.
AllianceBernstein
provides a broad range of investment services with expertise in:
|
·
|
Growth
equities, generally targeting stocks with under-appreciated growth
potential;
|
|
·
|
Value
equities, generally targeting stocks that are out of favor and that
may trade at bargain prices;
|
|
·
|
Fixed
income securities, including both taxable and tax-exempt
securities;
|
|
·
|
Passive
management, including both index and enhanced index strategies;
and
|
|
·
|
Blend
strategies, combining style pure investment components with systematic
rebalancing.
|
AllianceBernstein
manages 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.
AllianceBernstein’s
high-quality, in-depth fundamental research is the foundation of its business.
AllianceBernstein’s research disciplines include fundamental research,
quantitative research, economic research, and currency forecasting capabilities.
In addition, AllianceBernstein has created several specialist 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.
As
of
December 31, 2006, AXA, a société
anonyme
organized under the laws of France and the holding company for an international
group of insurance and related financial services companies, AXA
Financial, Inc. (an indirect wholly-owned subsidiary of AXA, “AXA
Financial”), AXA Equitable Life Insurance Company (a wholly-owned subsidiary of
AXA Financial, “AXA Equitable”) and certain subsidiaries of AXA Financial,
collectively referred to as “AXA and its subsidiaries”, owned approximately 1.7%
of the issued and outstanding Holding Units.
As
of
December 31, 2006, the ownership structure of AllianceBernstein, as a
percentage of general and limited partnership interests, was as
follows:
AXA
and its subsidiaries
|
|
|
59.7
|
%
|
Holding
|
|
|
32.8
|
|
SCB
Partners Inc. (a wholly-owned subsidiary of SCB Inc., formerly known
as
Sanford C. Bernstein Inc.)
|
|
|
6.2
|
|
Other
|
|
|
1.3
|
|
|
|
|
100.0
|
%
|
AllianceBernstein
Corporation (an indirect wholly-owned subsidiary of AXA, “General Partner”) is
the general partner of both Holding and AllianceBernstein. AllianceBernstein
Corporation owns 100,000 general partnership units in Holding and a 1% general
partnership interest in AllianceBernstein. Each general partnership unit in
Holding is entitled to receive quarterly distributions equal to those received
by each limited partnership unit. Including the general partnership interests
in
AllianceBernstein and Holding, and their equity interest in Holding, as of
December 31, 2006, AXA and its subsidiaries had an approximate 60.3%
economic interest in AllianceBernstein.
2. |
Summary
of Significant Accounting
Policies
|
Basis
of Presentation
The
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America. The
preparation of the financial statements requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
dates
of the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
The
AllianceBernstein Holding financial statements and notes should be read in
conjunction with the consolidated financial statements and notes of
AllianceBernstein. AllianceBernstein’s consolidated financial statements and
notes and management’s discussion and analysis of financial condition and
results of operations are included in Holding’s Form 10-K.
Investment
in AllianceBernstein
Holding
records its investment in AllianceBernstein using the equity method of
accounting. Holding’s investment will be increased to reflect its proportionate
share of income of AllianceBernstein and decreased to reflect its proportionate
share of losses of AllianceBernstein and cash distributions made by
AllianceBernstein to its unitholders. In addition, Holding’s investment is
adjusted to reflect certain capital transactions of
AllianceBernstein.
Cash
and Cash Equivalents
Cash
and
cash equivalents include cash on hand, demand deposits and highly liquid
investments including money market accounts with actual maturities of three
months or less. Due to the short-term nature of these instruments, this recorded
value has been determined to approximate fair value.
Cash
Distributions
Holding
is required to distribute all of its Available Cash Flow, as defined in the
Amended and Restated Agreement of Limited Partnership of Holding (“Holding
Partnership Agreement”), to its unitholders pro rata in accordance with their
percentage interests in Holding. Available Cash Flow is defined as the cash
distributions Holding receives from AllianceBernstein, minus such amounts as
the
General Partner determines, in its sole discretion, should be retained by
Holding for use in its business.
On
January 24, 2007, the General Partner declared a distribution of $126.8 million,
or $1.48 per unit, representing Available Cash Flow for the three months ended
December 31, 2006. The distribution was paid on February 15, 2007 to
holders of record at the close of business on February 5, 2007. Cash
distributions are recorded when declared.
Compensatory
Option Plans
AllianceBernstein
maintains certain compensation plans under which options on Holding Units have
been, or may be, granted to employees of AllianceBernstein and independent
directors of the General Partner. AllianceBernstein uses the Black-Scholes
option valuation model to determine the fair value of Holding Unit option
awards. Upon exercise of Holding Unit options, Holding exchanges the proceeds
for AllianceBernstein Units, thus increasing Holding’s investment in
AllianceBernstein. As of December 31, 2006, 4,819,099 options for Holding Units
were outstanding, of which 4,437,351 were exercisable.
Basic
net
income per unit is derived by dividing net income by the basic weighted average
number of units outstanding for each year. Diluted net income per unit is
derived by adjusting net income for the assumed dilutive effect of compensatory
options (“Net income—diluted”) and dividing Net income—diluted by the diluted
weighted average number of units outstanding for each year.
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
(in thousands, except per unit amounts)
|
|
|
|
|
|
|
|
|
|
Net
income—basic
|
|
$
|
324,996
|
|
$
|
248,064
|
|
$
|
195,173
|
|
Additional
allocation of equity in earnings of AllianceBernstein resulting from
assumed dilutive effect of compensatory options
|
|
|
5,430
|
|
|
3,326
|
|
|
2,662
|
|
Net
income-diluted
|
|
$
|
330,426
|
|
$
|
251,390
|
|
$
|
197,835
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average units outstanding—basic
|
|
|
84,325
|
|
|
81,489
|
|
|
79,727
|
|
Dilutive
effect of compensatory options
|
|
|
2,243
|
|
|
1,714
|
|
|
1,644
|
|
Weighted
average units outstanding—diluted
|
|
|
86,568
|
|
|
83,203
|
|
|
81,371
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per unit
|
|
$
|
3.85
|
|
$
|
3.04
|
|
$
|
2.45
|
|
Diluted
net income per unit
|
|
$
|
3.82
|
|
$
|
3.02
|
|
$
|
2.43
|
|
As
of
December 31, 2006, there were no out-of-the-money options (i.e., options with
an
exercise price greater than the weighted average closing price of a unit for
the
year). As of December 31, 2005 and 2004, we excluded 3,950,100 and
4,336,500 out-of-the-money options, respectively, from the diluted net
income per unit computation due to their anti-dilutive effect.
4. |
Investment
in AllianceBernstein
|
Holding’s
investment in AllianceBernstein for the years ended December 31, 2006 and
2005 was as follows:
|
|
2006
|
|
2005
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Investment
in AllianceBernstein as of January 1,
|
|
$
|
1,376,503
|
|
$
|
1,302,809
|
|
Equity
in earnings of AllianceBernstein
|
|
|
359,469
|
|
|
275,054
|
|
Additional
investment with proceeds from exercises of compensatory options to
buy
Holding Units
|
|
|
100,469
|
|
|
42,405
|
|
Change
in accumulated other comprehensive income
|
|
|
3,188
|
|
|
7,663
|
|
Cash
distributions received from AllianceBernstein
|
|
|
(332,035
|
)
|
|
(253,203
|
)
|
Purchases
of Holding Units by AllianceBernstein to fund deferred compensation
plans,
net
|
|
|
(22,345
|
)
|
|
(33,253
|
)
|
Issuance
of Holding Units in exchange for cash awards made by AllianceBernstein
under the Partners Compensation Plan
|
|
|
47,161
|
|
|
—
|
|
Awards
of Holding Units made by AllianceBernstein under deferred compensation
plans, net of forfeitures
|
|
|
35,323
|
|
|
35,028
|
|
Investment
in AllianceBernstein as of December 31,
|
|
$
|
1,567,733
|
|
$
|
1,376,503
|
|
Holding
is a publicly traded partnership for federal tax purposes and, accordingly,
is
not subject to federal or state corporate income taxes. However, Holding is
subject to the 4.0% New York City unincorporated business tax (“UBT”) and to a
3.5% federal tax on partnership gross income from the active conduct of a trade
or business. Holding’s partnership gross income is derived from its interest in
AllianceBernstein.
The
principal reasons for the difference between Holding’s effective tax rates and
the UBT statutory tax rate of 4.0% are as follows:
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UBT
statutory rate
|
|
$
|
14,379
|
|
|
4.0
|
%
|
$
|
11,002
|
|
|
4.0
|
%
|
$
|
8,799
|
|
|
4.0
|
%
|
Federal
tax on partnership gross business income
|
|
|
34,473
|
|
|
9.6
|
|
|
26,990
|
|
|
9.8
|
|
|
24,798
|
|
|
11.3
|
|
Credit
for UBT paid by AllianceBernstein
|
|
|
(14,379
|
)
|
|
(4.0
|
)
|
|
(11,002
|
)
|
|
(4.0
|
)
|
|
(8,799
|
)
|
|
(4.0
|
)
|
Income
tax expense (all currently payable) and effective tax
rate
|
|
$
|
34,473
|
|
|
9.6
|
|
$
|
26,990
|
|
|
9.8
|
|
$
|
24,798
|
|
|
11.3
|
|
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. If Holding were to lose its status as a grandfathered publicly
traded partnership, it would be subject to corporate income tax, which would
reduce materially Holding’s net income and its quarterly distributions to
Holding Unitholders.
Effective
January 1, 2007, we will adopt the provisions in FIN No. 48. See
Note 7.
6. |
Commitments
and Contingencies
|
Legal
and
regulatory matters described below pertain to AllianceBernstein and are included
here due to their potential significance to Holding’s investment in
AllianceBernstein.
Legal
Proceedings
With
respect to all significant litigation matters, we conduct a probability
assessment of the likelihood of a negative outcome. If we determine the
likelihood of a negative outcome is probable, and the amount of the loss can
be
reasonably estimated, we record an estimated loss for the expected outcome
of
the litigation as required by Statement of Financial Accounting Standards
No. 5 (“SFAS No. 5”), “Accounting
for Contingencies”,
and
Financial Accounting Standards Board (“FASB”) Interpretation No. 14,
“Reasonable
Estimation of the Amount of a Loss - an interpretation of FASB Statement
No. 5”.
If the
likelihood of a negative outcome is reasonably possible and we are able to
indicate an estimate of the possible loss or range of loss, we disclose that
fact together with the estimate of the possible loss or range of loss. However,
it is difficult to predict the outcome or estimate a possible loss or range
of
loss because litigation is subject to significant uncertainties, particularly
when plaintiffs allege substantial or indeterminate damages, or when the
litigation is highly complex or broad in scope.
On
April 8, 2002, In
re
Enron Corporation Securities Litigation,
a
consolidated complaint (as subsequently amended, “Enron Complaint”) was filed in
the United States District Court for the Southern District of Texas, Houston
Division, against numerous defendants, including AllianceBernstein, alleging
that AllianceBernstein violated Sections 11 and 15 of the Securities Act of
1933, as amended (“Securities Act”), with respect to a registration statement
filed by Enron Corp. On January 2, 2007, the court issued a final judgment
dismissing the Enron Complaint as the allegations therein pertained to
AllianceBernstein. The parties have agreed that there will be no
appeal.
Market
Timing-related Matters
On
October 2, 2003, a purported class action complaint
entitled
Hindo, et al. v. AllianceBernstein Growth & Income Fund, et
al.
(“Hindo
Complaint”) was filed against AllianceBernstein, Holding, the General Partner,
AXA Financial, the AllianceBernstein-sponsored mutual funds (“U.S. Funds”) that
are registered under the Investment Company Act of 1940, as amended (“Investment
Company Act”), the registrants and issuers of those funds, certain officers of
AllianceBernstein (“AllianceBernstein defendants”), and certain unaffiliated
defendants, as well as unnamed Doe defendants. The Hindo Complaint was filed
in
the United States District Court for the Southern District of New York by
alleged shareholders of two of the U.S. Funds. The Hindo Complaint alleges
that
certain of the AllianceBernstein defendants failed to disclose that they
improperly allowed certain hedge funds and other unidentified parties to engage
in “late trading” and “market timing” of U.S. Fund securities, violating
Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934, as amended, and Sections 206 and 215 of
the
Investment Advisers Act of 1940, as amended (“Advisers Act”). Plaintiffs seek an
unspecified amount of compensatory damages and rescission of their contracts
with AllianceBernstein, including recovery of all fees paid to AllianceBernstein
pursuant to such contracts.
Following
October 2, 2003, additional lawsuits making factual allegations generally
similar to those in the Hindo Complaint were filed in various federal and state
courts against AllianceBernstein and certain other defendants. All state court
actions against AllianceBernstein either were voluntarily dismissed or removed
to federal court. On February 20, 2004, the Judicial Panel on Multidistrict
Litigation transferred all federal actions to the United States District Court
for the District of Maryland (“Mutual Fund MDL”). On
September 29, 2004, plaintiffs filed consolidated amended complaints with
respect to four claim types: mutual fund shareholder claims; mutual fund
derivative claims; derivative claims brought on behalf of Holding; and claims
brought under the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”) by participants in the Profit Sharing Plan for Employees of
AllianceBernstein. All four complaints included substantially identical factual
allegations, which appear to be based in large part on the Order of the U.S.
Securities and Exchange Commission dated December 18, 2003 (as amended and
restated January 15, 2004, “SEC Order”) and the New York State Attorney General
Assurance of Discontinuance dated September 1, 2004 (“NYAG AoD”).
On
April 21, 2006, AllianceBernstein and attorneys for the plaintiffs in the
mutual fund shareholder claims, mutual fund derivative claims, and ERISA claims
entered into a confidential memorandum of understanding (“MOU”) containing their
agreement to settle these claims. The agreement will be documented by a
stipulation of settlement and will be submitted for court approval at a later
date. The settlement amount ($30 million), which we previously accrued and
disclosed, has been disbursed. The derivative claims brought on behalf of
Holding, in which plaintiffs seek an unspecified amount of damages, remain
pending.
We
intend
to vigorously defend against the lawsuit involving derivative claims brought
on
behalf of Holding. At the present time, we are unable to predict the outcome
or
estimate a possible loss or range of loss in respect of this matter because
of
the inherent uncertainty regarding the outcome of complex litigation, and the
fact that the plaintiffs did not specify an amount of damages sought in their
complaint.
On
April 11, 2005, a complaint entitled
The
Attorney General of the State of West Virginia v. AIM Advisors, Inc., et
al.
(“WVAG
Complaint”) was filed against AllianceBernstein, Holding, and various
unaffiliated defendants. The WVAG Complaint was filed in the Circuit Court
of
Marshall County, West Virginia by the Attorney General of the State of West
Virginia. The WVAG Complaint makes factual allegations generally similar to
those in the Hindo Complaint. On October 19, 2005, the WVAG Complaint was
transferred to the Mutual Fund MDL. On August 30, 2005, the WV Securities
Commissioner signed a Summary Order to Cease and Desist, and Notice of Right
to
Hearing (“Summary Order”) addressed to AllianceBernstein and Holding. The
Summary Order claims that AllianceBernstein and Holding violated the West
Virginia Uniform Securities Act and makes factual allegations generally
similar to those in the SEC Order and NYAG AoD. On January 25, 2006,
AllianceBernstein and Holding moved to vacate the Summary Order. In early
September 2006, the court denied this motion, and the Supreme Court of Appeals
in West Virginia denied our petition for appeal. On September 22, 2006, we
filed
an answer and moved to dismiss the Summary Order with the WV Securities
Commissioner.
We
intend
to vigorously defend against the allegations in the WVAG Complaint and the
Summary Order. At the present time, we are unable to predict the outcome or
estimate a possible loss or range of loss in respect of these matters because
of
the inherent uncertainty regarding the outcome of complex litigation, the fact
that plaintiffs did not specify an amount of damages sought in their complaint,
and the fact that, to date, we have not engaged in settlement
negotiations.
Revenue
Sharing-related Matters
On
June 22, 2004, a purported class action complaint entitled
Aucoin, et al. v. Alliance Capital Management L.P., et al.
(“Aucoin Complaint”) was filed against AllianceBernstein, Holding, the General
Partner, AXA Financial, AllianceBernstein Investments, Inc., certain current
and
former directors of the U.S. Funds, and unnamed Doe defendants. The Aucoin
Complaint names the U.S. Funds as nominal defendants. The Aucoin Complaint
was
filed in the United States District Court for the Southern District of New
York
by alleged shareholders of the AllianceBernstein Growth & Income Fund.
The Aucoin Complaint alleges, among other things, (i) that certain of the
defendants improperly authorized the payment of excessive commissions and other
fees from U.S. Fund assets to broker-dealers in exchange for preferential
marketing services, (ii) that certain of the defendants misrepresented and
omitted from registration statements and other reports material facts concerning
such payments, and (iii) that certain defendants caused such conduct as
control persons of other defendants. The Aucoin Complaint asserts claims for
violation of Sections 34(b), 36(b) and 48(a) of the Investment Company
Act, Sections 206 and 215 of the Advisers Act, breach of common law fiduciary
duties, and aiding and abetting breaches of common law fiduciary duties.
Plaintiffs seek an unspecified amount of compensatory damages and punitive
damages, rescission of their contracts with AllianceBernstein, including
recovery of all fees paid to AllianceBernstein pursuant to such contracts,
an
accounting of all U.S. Fund-related fees, commissions and soft dollar payments,
and restitution of all unlawfully or discriminatorily obtained fees and
expenses.
On
February 2, 2005, plaintiffs filed a consolidated amended class action
complaint (“Aucoin Consolidated Amended Complaint”) that asserted claims
substantially similar to the Aucoin Complaint and nine additional
subsequently-filed lawsuits. On October 19, 2005, the United States
District Court for the Southern District of New York dismissed each of the
claims set forth in the Aucoin Consolidated Amended Complaint, except for
plaintiffs’ claim under Section 36(b) of the Investment Company Act.
On January 11, 2006, the District Court granted defendants’ motion for
reconsideration and dismissed the remaining Section 36(b) claim. On
May 31, 2006, the District Court denied plaintiffs’ motion for leave to file
their amended complaint. On July 5, 2006, plaintiffs filed a notice of appeal,
which was subsequently withdrawn subject to plaintiffs’ right to reinstate it at
a later date.
We
believe that plaintiffs’ allegations in the Aucoin Consolidated Amended
Complaint are without merit and intend to vigorously defend against these
allegations. At the present time, we are unable to predict the outcome or
estimate a possible loss or range of loss in respect of this matter because
of
the inherent uncertainty regarding the outcome of complex litigation, the fact
that plaintiffs did not specify an amount of damages sought in their complaint,
and the fact that, to date, we have not engaged in settlement
negotiations.
We
are
involved in various other matters, including employee arbitrations, regulatory
inquiries, administrative proceedings, and litigation, some of which allege
material damages. While any proceeding or litigation has the element of
uncertainty, we believe that the outcome of any one of the other lawsuits or
claims that is pending or threatened, or all of them combined, will not have
a
material adverse effect on our results of operations or financial
condition.
Claims
Processing Contingency
During
the fourth quarter of 2006, AllianceBernstein recorded a $56.0 million
pre-tax charge ($54.5 million, net of the related income tax benefit), for
the
estimated cost of reimbursing certain clients for losses arising out of an
error
made in processing claims for class action settlement proceeds on behalf of
these clients, which include some AllianceBernstein-sponsored mutual funds.
The
effect of the charge and related income tax benefit on Holding’s 2006 results of
operations was a decrease in net income and diluted net income per unit of
$17.8
million and $0.20, respectively. Our estimate of the cost is based on our review
to date; as we continue our review, our estimate and the ultimate cost we incur
may change. We believe that most of this cost will ultimately be recovered
by
AllianceBernstein from residual settlement proceeds and insurance.
7. |
Accounting
Pronouncements
|
In
June
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48 (“FIN No. 48”), “Accounting
for Uncertainty in Income Taxes”,
an
interpretation of FASB Statement 109. FIN No. 48 requires that the effects
of a
tax position be recognized in the financial statements only if, as of the
reporting date, it is “more likely than not” to be sustained based solely on its
technical merits. In making this assessment, a company must assume that the
taxing authority will examine the tax position and have full knowledge of all
relevant information. FIN No. 48 became effective on January 1, 2007. We
currently estimate that the implementation of FIN No. 48 will not have a
material impact on our results of operations, liability for income taxes, or
partners’ capital in 2007.
8. |
Quarterly
Financial Data (Unaudited)
|
|
|
Quarters Ended 2006
|
|
|
|
December 31
|
|
September 30
|
|
June 30
|
|
March 31
|
|
|
|
(in thousands, except per unit amounts)
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in earnings of AllianceBernstein
|
|
$
|
119,763
|
|
$
|
82,028
|
|
$
|
84,514
|
|
$
|
73,164
|
|
Net
income
|
|
$
|
109,429
|
|
$
|
74,003
|
|
$
|
76,005
|
|
$
|
65,559
|
|
Basic
net income per unit(1)
|
|
$
|
1.28
|
|
$
|
0.88
|
|
$
|
0.90
|
|
$
|
0.79
|
|
Diluted
net income per unit(1)
|
|
$
|
1.27
|
|
$
|
0.87
|
|
$
|
0.89
|
|
$
|
0.78
|
|
Cash
distributions per unit(2)
|
|
$
|
1.48
|
|
$
|
0.87
|
|
$
|
0.89
|
|
$
|
0.78
|
|
Unit
prices(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High:
|
|
$
|
82.92
|
|
$
|
71.03
|
|
$
|
72.11
|
|
$
|
66.60
|
|
Low
|
|
$
|
68.27
|
|
$
|
56.10
|
|
$
|
55.50
|
|
$
|
56.12
|
|
|
|
Quarters Ended 2005
|
|
|
|
December 31
|
|
September 30
|
|
June 30
|
|
March 31
|
|
|
|
(in thousands, except per unit amounts)
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in earnings of AllianceBernstein
|
|
$
|
92,143
|
|
$
|
67,237
|
|
$
|
62,654
|
|
$
|
53,020
|
|
Net
income
|
|
$
|
84,536
|
|
$
|
60,570
|
|
$
|
56,124
|
|
$
|
46,834
|
|
Basic
net income per unit(1)
|
|
$
|
1.03
|
|
$
|
0.74
|
|
$
|
0.69
|
|
$
|
0.58
|
|
Diluted
net income per unit(1)
|
|
$
|
1.02
|
|
$
|
0.74
|
|
$
|
0.68
|
|
$
|
0.58
|
|
Cash
distributions per unit(2)
|
|
$
|
1.02
|
|
$
|
0.74
|
|
$
|
0.68
|
|
$
|
0.56
|
|
Unit
prices(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
58.46
|
|
$
|
48.39
|
|
$
|
47.75
|
|
$
|
49.90
|
|
Low
|
|
$
|
46.00
|
|
$
|
43.65
|
|
$
|
42.35
|
|
$
|
40.25
|
|
____________
____________
(1)
|
Basic
and diluted net income per unit are computed independently for each
of the
periods presented. Accordingly, the sum of the quarterly net income
per
unit amounts may not agree to the total for the
year.
|
(2)
|
Declared
and paid during the following
quarter.
|
(3)
|
High
and low sales prices as reported by the New York Stock
Exchange.
|
Report
of Independent Registered Public Accounting Firm
To the
General Partner and Unitholders
AllianceBernstein
Holding L.P.:
We
have
completed an integrated audit of
AllianceBernstein Holding L.P.’s 2006 financial statements and of its internal
control over financial reporting as of December 31, 2006 in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Our opinions, based on our audit, are presented
below.
Financial
statements
In
our
opinion, the accompanying statement of financial condition and the related
statements of income, changes in partners' capital and comprehensive income
and
cash flows present fairly, in all material respects, the financial position
of
AllianceBernstein Holding L.P. (“AllianceBernstein Holding”) at December 31,
2006 and for the year then ended in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of AllianceBernstein Holding’s management. Our
responsibility is to express an opinion on these financial statements based
on
our audit. We conducted our audit of these statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit of financial statements includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our
opinion.
Internal
control over financial reporting
Also,
in
our opinion, management’s assessment, included in the accompanying Management's
Report on Internal Control over Financial Reporting,
that
AllianceBernstein Holding maintained effective internal control over financial
reporting as of December 31, 2006, based on criteria established in Internal
Control - Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
is fairly stated, in all material respects, based on those criteria.
Furthermore, in our opinion, AllianceBernstein Holding, maintained, in all
material respects, effective internal control over financial reporting as of
December 31, 2006, based on criteria established in Internal
Control - Integrated Framework
issued
by the COSO. AllianceBernstein Holding's management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express opinions on management’s assessment and on the
effectiveness of AllianceBernstein Holding's internal control over financial
reporting based on our audit. We conducted our audit of internal control over
financial reporting in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. An audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial reporting,
evaluating management’s assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other
procedures as we consider necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures
of
the company are being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use,
or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers LLP
New
York,
New York
February 27,
2007
Report
of Independent Registered Public Accounting Firm
The
General Partner and Unitholders
AllianceBernstein
Holding L.P.:
We
have
audited the accompanying statement of financial condition of AllianceBernstein
Holding L.P. (“AllianceBernstein Holding”), formerly Alliance Capital Management
Holding L.P., as of December 31, 2005, and the related statements of
income, changes in partners’ capital and comprehensive income and cash flows for
each of the years in the two-year period ended December 31, 2005. These
financial statements are the responsibility of the management of the General
Partner. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of AllianceBernstein Holding as of
December 31, 2005, and the results of its operations and its cash flows for
each of the years in the two-year period ended December 31, 2005, in
conformity with U.S. generally accepted accounting principles.
/s/
KPMG LLP
|
|
New
York, New York
|
February 24,
2006
|
AND
SUBSIDIARIES
Consolidated
Statements of Financial Condition
|
|
December 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
(in
thousands, except unit amounts)
|
|
ASSETS
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
692,658
|
|
$
|
654,168
|
|
Cash
and securities segregated, at market (cost $1,863,133 and
$1,720,295)
|
|
|
1,863,957
|
|
|
1,720,809
|
|
Receivables,
net:
|
|
|
|
|
|
|
|
Brokers
and dealers
|
|
|
2,445,552
|
|
|
2,093,461
|
|
Brokerage
clients
|
|
|
485,446
|
|
|
429,586
|
|
Fees,
net
|
|
|
557,280
|
|
|
413,198
|
|
Investments
|
|
|
543,653
|
|
|
345,045
|
|
Furniture,
equipment and leasehold improvements, net
|
|
|
288,575
|
|
|
236,309
|
|
Goodwill,
net
|
|
|
2,893,029
|
|
|
2,876,657
|
|
Intangible
assets, net
|
|
|
284,925
|
|
|
305,325
|
|
Deferred
sales commissions, net
|
|
|
194,950
|
|
|
196,637
|
|
Other
investments
|
|
|
203,950
|
|
|
86,369
|
|
Other
assets
|
|
|
147,130
|
|
|
132,916
|
|
Total
assets
|
|
$
|
10,601,105
|
|
$
|
9,490,480
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND PARTNERS’ CAPITAL
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Payables:
|
|
|
|
|
|
|
|
Brokers
and dealers
|
|
$
|
661,790
|
|
$
|
1,057,274
|
|
Brokerage
clients
|
|
|
3,988,032
|
|
|
2,929,500
|
|
AllianceBernstein
mutual funds
|
|
|
266,849
|
|
|
140,603
|
|
Accounts
payable and accrued expenses
|
|
|
333,007
|
|
|
286,449
|
|
Accrued
compensation and benefits
|
|
|
392,014
|
|
|
357,321
|
|
Debt
|
|
|
334,901
|
|
|
407,291
|
|
Minority
interests in consolidated subsidiaries
|
|
|
53,515
|
|
|
9,368
|
|
Total
liabilities
|
|
|
6,030,108
|
|
|
5,187,806
|
|
Commitments
and contingencies (See
Note 11)
|
|
|
|
|
|
|
|
Partners’
capital:
|
|
|
|
|
|
|
|
General
Partner
|
|
|
46,416
|
|
|
44,065
|
|
Limited
partners: 259,062,014 and 255,624,870 units issued and
outstanding
|
|
|
4,584,200
|
|
|
4,334,207
|
|
|
|
|
4,630,616
|
|
|
4,378,272
|
|
Capital
contributions receivable from General Partner
|
|
|
(29,590
|
)
|
|
(31,775
|
)
|
Deferred
compensation expense
|
|
|
(63,196
|
)
|
|
(67,895
|
)
|
Accumulated
other comprehensive income
|
|
|
33,167
|
|
|
24,072
|
|
Total
partners’ capital
|
|
|
4,570,997
|
|
|
4,302,674
|
|
Total
liabilities and partners’ capital
|
|
$
|
10,601,105
|
|
$
|
9,490,480
|
|
See
Accompanying Notes to Consolidated Financial Statements.
ALLIANCEBERNSTEIN
L.P.
AND
SUBSIDIARIES
Consolidated
Statements of Income
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
(in
thousands, except per unit amounts)
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
Investment
advisory and services fees
|
|
$
|
2,890,229
|
|
$
|
2,259,392
|
|
$
|
1,996,819
|
|
Distribution
revenues
|
|
|
421,045
|
|
|
397,800
|
|
|
447,283
|
|
Institutional
research services
|
|
|
375,075
|
|
|
352,757
|
|
|
420,141
|
|
Dividend
and interest income
|
|
|
266,520
|
|
|
152,781
|
|
|
72,743
|
|
Investment
gains (losses)
|
|
|
53,134
|
|
|
28,631
|
|
|
14,499
|
|
Other
revenues
|
|
|
132,237
|
|
|
117,227
|
|
|
136,744
|
|
Total
revenues
|
|
|
4,138,240
|
|
|
3,308,588
|
|
|
3,088,229
|
|
Less:
Interest expense
|
|
|
187,833
|
|
|
95,863
|
|
|
32,796
|
|
Net
revenues
|
|
|
3,950,407
|
|
|
3,212,725
|
|
|
3,055,433
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
Employee
compensation and benefits
|
|
|
1,547,627
|
|
|
1,262,198
|
|
|
1,085,163
|
|
Promotion
and servicing:
|
|
|
|
|
|
|
|
|
|
|
Distribution
plan payments
|
|
|
292,886
|
|
|
291,953
|
|
|
374,184
|
|
Amortization
of deferred sales commissions
|
|
|
100,370
|
|
|
131,979
|
|
|
177,356
|
|
Other
|
|
|
218,944
|
|
|
198,004
|
|
|
202,327
|
|
General
and administrative
|
|
|
583,296
|
|
|
384,339
|
|
|
426,389
|
|
Interest
on borrowings
|
|
|
23,124
|
|
|
25,109
|
|
|
24,232
|
|
Amortization
of intangible assets
|
|
|
20,710
|
|
|
20,700
|
|
|
20,700
|
|
|
|
|
2,786,957
|
|
|
2,314,282
|
|
|
2,310,351
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
1,163,450
|
|
|
898,443
|
|
|
745,082
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating
income
|
|
|
20,196
|
|
|
34,446
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
1,183,646
|
|
|
932,889
|
|
|
745,082
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
75,045
|
|
|
64,571
|
|
|
39,932
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
1,108,601
|
|
$
|
868,318
|
|
$
|
705,150
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per unit:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
4.26
|
|
$
|
3.37
|
|
$
|
2.76
|
|
Diluted
|
|
$
|
4.22
|
|
$
|
3.35
|
|
$
|
2.74
|
|
See
Accompanying Notes to Consolidated Financial Statements.
ALLIANCEBERNSTEIN
L.P.
AND
SUBSIDIARIES
Consolidated
Statements of Changes in Partners’ Capital and Comprehensive
Income
|
|
General
Partner’s
Capital
|
|
Limited
Partners’
Capital
|
|
Capital
Contributions
Receivable
|
|
Deferred
Compensation
Expense
|
|
Accumulated
Other
Comprehensive
Income
|
|
Total
Partners’
Capital
|
|
|
|
(in
thousands, except per unit amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2003
|
|
$
|
39,195
|
|
$
|
3,858,538
|
|
$
|
(35,698
|
)
|
$
|
(111,134
|
)
|
$
|
27,568
|
|
$
|
3,778,469
|
|
Comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
7,052
|
|
|
698,098
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
705,150
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on investments, net
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(236
|
)
|
|
(236
|
)
|
Foreign
currency translation adjustment, net
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,768
|
|
|
14,768
|
|
Comprehensive
income (loss)
|
|
|
7,052
|
|
|
698,098
|
|
|
—
|
|
|
—
|
|
|
14,532
|
|
|
719,682
|
|
Cash
distributions to General Partner and unitholders ($1.50 per
unit)
|
|
|
(3,838
|
)
|
|
(379,144
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(382,982
|
)
|
Capital
contributions from General Partner
|
|
|
—
|
|
|
—
|
|
|
5,901
|
|
|
—
|
|
|
—
|
|
|
5,901
|
|
Purchases
of Holding Units to fund deferred compensation plans, net
|
|
|
9
|
|
|
(8,557
|
)
|
|
—
|
|
|
(36,532
|
)
|
|
—
|
|
|
(45,080
|
)
|
Compensatory
Holding Unit options expense
|
|
|
—
|
|
|
2,356
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,356
|
|
Amortization
of deferred compensation awards
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
58,647
|
|
|
—
|
|
|
58,647
|
|
Compensation
plan accrual
|
|
|
32
|
|
|
3,224
|
|
|
(3,256
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Additional
investment by Holding with proceeds from exercise of compensatory
options
to buy Holding Units
|
|
|
467
|
|
|
46,238
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
46,705
|
|
Balance
as of December 31, 2004
|
|
|
42,917
|
|
|
4,220,753
|
|
|
(33,053
|
)
|
|
(89,019
|
)
|
|
42,100
|
|
|
4,183,698
|
|
Comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
8,683
|
|
|
859,635
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
868,318
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on investments, net
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,985
|
|
|
1,985
|
|
Foreign
currency translation adjustment, net
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20,013
|
)
|
|
(20,013
|
)
|
Comprehensive
income (loss)
|
|
|
8,683
|
|
|
859,635
|
|
|
—
|
|
|
—
|
|
|
(18,028
|
)
|
|
850,290
|
|
Cash
distributions to General Partner and unitholders ($3.11 per
unit)
|
|
|
(8,005
|
)
|
|
(792,504
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(800,509
|
)
|
Capital
contributions from General Partner
|
|
|
—
|
|
|
—
|
|
|
4,191
|
|
|
—
|
|
|
—
|
|
|
4,191
|
|
Purchases
of Holding Units to fund deferred compensation plans, net
|
|
|
16
|
|
|
(733
|
)
|
|
—
|
|
|
(32,536
|
)
|
|
—
|
|
|
(33,253
|
)
|
Compensatory
Holding Unit options expense
|
|
|
—
|
|
|
2,192
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,192
|
|
Amortization
of deferred compensation awards
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
53,660
|
|
|
—
|
|
|
53,660
|
|
Compensation
plan accrual
|
|
|
29
|
|
|
2,884
|
|
|
(2,913
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Additional
investment by Holding with proceeds from exercise of compensatory
options
to buy Holding Units
|
|
|
425
|
|
|
41,980
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
42,405
|
|
Balance
as of December 31, 2005
|
|
|
44,065
|
|
|
4,334,207
|
|
|
(31,775
|
)
|
|
(67,895
|
)
|
|
24,072
|
|
|
4,302,674
|
|
Comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
11,086
|
|
|
1,097,515
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,108,601
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on investments, net
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,198
|
|
|
5,198
|
|
Foreign
currency translation adjustment, net
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,821
|
|
|
10,821
|
|
Comprehensive
income (loss)
|
|
|
11,086
|
|
|
1,097,515
|
|
|
—
|
|
|
—
|
|
|
16,019
|
|
|
1,124,620
|
|
Adjustment
to initially apply FASB Statement No. 158, net
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,924
|
)
|
|
(6,924
|
)
|
Cash
distributions to General Partner and unitholders ($3.94 per
unit)
|
|
|
(10,255
|
)
|
|
(1,015,206
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,025,461
|
)
|
Capital
contributions from General Partner
|
|
|
—
|
|
|
—
|
|
|
4,303
|
|
|
—
|
|
|
—
|
|
|
4,303
|
|
Purchases
of Holding Units to fund deferred compensation plans, net
|
|
|
23
|
|
|
16,734
|
|
|
—
|
|
|
(39,102
|
)
|
|
—
|
|
|
(22,345
|
)
|
Additional
investment by Holding through issuance of Holding Units in exchange
for
cash awards made under the Partners Compensation Plan
|
|
|
471
|
|
|
46,690
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
47,161
|
|
Compensatory
Holding Unit options expense
|
|
|
—
|
|
|
2,699
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,699
|
|
Amortization
of deferred compensation awards
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
43,801
|
|
|
—
|
|
|
43,801
|
|
Compensation
plan accrual
|
|
|
21
|
|
|
2,097
|
|
|
(2,118
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Additional
investment by Holding with proceeds from exercise of compensatory
options
to buy Holding Units
|
|
|
1,005
|
|
|
99,464
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
100,469
|
|
Balance
as of December 31, 2006
|
|
$
|
46,416
|
|
$
|
4,584,200
|
|
$
|
(29,590
|
)
|
$
|
(63,196
|
)
|
$
|
33,167
|
|
$
|
4,570,997
|
|
See
Accompanying Notes to Consolidated Financial Statements.
ALLIANCEBERNSTEIN
L.P.
AND
SUBSIDIARIES
Consolidated
Statements of Cash Flows
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
(in
thousands)
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
1,108,601
|
|
$
|
868,318
|
|
$
|
705,150
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred sales commissions
|
|
|
100,370
|
|
|
131,979
|
|
|
177,356
|
|
Amortization
of deferred compensation
|
|
|
76,251
|
|
|
85,437
|
|
|
101,561
|
|
Depreciation
and other amortization
|
|
|
72,445
|
|
|
67,980
|
|
|
74,878
|
|
Other,
net
|
|
|
(19,898
|
)
|
|
(14,774
|
)
|
|
7,859
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
(Increase)
in segregated cash and securities
|
|
|
(143,148
|
)
|
|
(231,768
|
)
|
|
(203,240
|
)
|
(Increase)
decrease in receivable from brokers and dealers
|
|
|
(324,640
|
)
|
|
(605,389
|
)
|
|
137,052
|
|
(Increase)
in receivable from brokerage clients
|
|
|
(31,974
|
)
|
|
(90,453
|
)
|
|
(21,154
|
)
|
(Increase)
in fees receivable, net
|
|
|
(135,821
|
)
|
|
(65,861
|
)
|
|
(13,187
|
)
|
(Increase)
in trading investments
|
|
|
(125,121
|
)
|
|
(135,121
|
)
|
|
(56,105
|
)
|
(Increase)
in deferred sales commissions
|
|
|
(98,679
|
)
|
|
(74,161
|
)
|
|
(44,584
|
)
|
(Increase)
in other investments
|
|
|
(115,317
|
)
|
|
(23,045
|
)
|
|
(29,996
|
)
|
(Increase)
in other assets
|
|
|
(9,638
|
)
|
|
(27,645
|
)
|
|
(2,142
|
)
|
(Decrease)
increase in payable to brokers and dealers
|
|
|
(422,492
|
)
|
|
279,926
|
|
|
(339,687
|
)
|
Increase
in payable to brokerage clients
|
|
|
1,035,367
|
|
|
268,608
|
|
|
761,098
|
|
Increase
in payable to AllianceBernstein mutual funds
|
|
|
126,236
|
|
|
14,966
|
|
|
9,488
|
|
Increase
(decrease) in accounts payable and accrued expenses
|
|
|
72,169
|
|
|
7,158
|
|
|
(267,879
|
)
|
Increase
(decrease) in accrued compensation and benefits, less deferred
compensation
|
|
|
39,579
|
|
|
3,927
|
|
|
(28,304
|
)
|
Net
cash provided by operating activities
|
|
|
1,204,290
|
|
|
460,082
|
|
|
968,164
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases
of investments
|
|
|
(54,803
|
)
|
|
(7,380
|
)
|
|
(27,407
|
)
|
Proceeds
from sales of investments
|
|
|
12,812
|
|
|
12,717
|
|
|
38,046
|
|
Additions
to furniture, equipment and leasehold improvements
|
|
|
(97,073
|
)
|
|
(72,586
|
)
|
|
(57,313
|
)
|
Purchase
of business, net of cash acquired
|
|
|
(16,086
|
)
|
|
—
|
|
|
—
|
|
Net
cash used in investing activities
|
|
|
(155,150
|
)
|
|
(67,249
|
)
|
|
(46,674
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Issuance
(repayment) of commercial paper, net
|
|
|
328,119
|
|
|
(150
|
)
|
|
(92
|
)
|
Repayment
of long-term debt
|
|
|
(408,149
|
)
|
|
—
|
|
|
—
|
|
Cash
distributions to General Partner and unitholders
|
|
|
(1,025,461
|
)
|
|
(800,509
|
)
|
|
(382,982
|
)
|
Capital
contributions from General Partner
|
|
|
4,303
|
|
|
4,191
|
|
|
5,901
|
|
Additional
investment by Holding with proceeds from exercise of compensatory
options
to buy Holding Units
|
|
|
100,469
|
|
|
42,405
|
|
|
46,705
|
|
Purchases
of Holding Units to fund deferred compensation plans, net
|
|
|
(22,345
|
)
|
|
(33,253
|
)
|
|
(45,080
|
)
|
Net
cash used in financing activities
|
|
|
(1,023,064
|
)
|
|
(787,316
|
)
|
|
(375,548
|
)
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
12,414
|
|
|
(12,872
|
)
|
|
12,723
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
38,490
|
|
|
(407,355
|
)
|
|
558,665
|
|
Cash
and cash equivalents as of beginning of the period
|
|
|
654,168
|
|
|
1,061,523
|
|
|
502,858
|
|
Cash
and cash equivalents as of end of the period
|
|
$
|
692,658
|
|
$
|
654,168
|
|
$
|
1,061,523
|
|
Cash
paid:
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
229,009
|
|
$
|
122,152
|
|
$
|
55,102
|
|
Income
taxes
|
|
|
59,704
|
|
|
56,521
|
|
|
33,516
|
|
Non-cash
financing activities:
|
|
|
|
|
|
|
|
|
|
|
Additional
investment by Holding through issuance of Holding Units in exchange
for
cash awards made under the Partners Compensation Plan
|
|
|
47,161
|
|
|
—
|
|
|
—
|
|
See
Accompanying Notes to Consolidated Financial Statements.
ALLIANCEBERNSTEIN
L.P.
AND
SUBSIDIARIES
Notes
to Consolidated Financial Statements
The
words “we” and “our” refer collectively to AllianceBernstein Holding L.P. and
AllianceBernstein L.P. and its subsidiaries, 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.
1.
|
Organization
and Business Description
|
AllianceBernstein
provides research, diversified investment management and related services
globally to a broad range of clients. Its principal services are:
|
·
|
Institutional
Investments Services - servicing institutional investors, including
unaffiliated corporate and public employee pension funds, endowment
funds,
domestic and foreign institutions and governments, and affiliates
such as
AXA and certain of its insurance company subsidiaries, by means of
separately managed accounts, sub-advisory relationships, structured
products, group trusts, mutual funds (sponsored by AllianceBernstein
or
our affiliated joint venture companies), and other investment
vehicles.
|
|
·
|
Retail
Services - servicing individual investors, primarily by means of
retail
mutual funds sponsored by AllianceBernstein or our affiliated joint
venture companies, sub-advisory relationships in respect of mutual
funds
sponsored by third parties, separately managed account programs that
are
sponsored by various financial intermediaries worldwide, and other
investment vehicles.
|
|
·
|
Private
Client Services - servicing 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.
|
|
·
|
Institutional
Research Services - servicing institutional investors desiring
institutional research services including in-depth, independent,
fundamental research, portfolio strategy, trading, and brokerage-related
services.
|
We
also
provide distribution, shareholder servicing, and administrative services to
our
sponsored mutual funds.
We
provide a broad range of investment services with expertise in:
|
·
|
Growth
equities, generally targeting stocks with under-appreciated growth
potential;
|
|
·
|
Value
equities, generally targeting stocks that are out of favor and that
may trade at bargain prices;
|
|
·
|
Fixed
income securities, including both taxable and tax-exempt
securities;
|
|
·
|
Passive
management, including both index and enhanced index strategies;
and
|
|
·
|
Blend
strategies, combining style pure investment components with systematic
rebalancing.
|
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.
Our
high-quality, in-depth fundamental research is the foundation of our business.
AllianceBernstein’s research disciplines include fundamental research,
quantitative research, economic research, and currency forecasting capabilities.
In addition, AllianceBernstein has created several specialist 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.
As
of
December 31, 2006, AXA, a société
anonyme
organized under the laws of France and the holding company for an international
group of insurance and related financial services companies, AXA
Financial, Inc. (an indirect wholly-owned subsidiary of AXA, “AXA
Financial”), AXA Equitable Life Insurance Company (a wholly-owned subsidiary of
AXA Financial, “AXA Equitable”) and certain subsidiaries of AXA Financial,
collectively referred to as “AXA and its subsidiaries”, owned approximately 1.7%
of the issued and outstanding Holding Units.
As
of
December 31, 2006, the ownership of AllianceBernstein, as a percentage of
general and limited partnership interests, was as follows:
AXA
and its subsidiaries
|
|
|
59.7
|
%
|
Holding
|
|
|
32.8
|
|
SCB
Partners Inc. (a wholly-owned subsidiary of SCB Inc.; formerly known
as
Sanford
C. Bernstein Inc.)
|
|
|
6.2
|
|
Other
|
|
|
1.3
|
|
|
|
|
100.0
|
%
|
AllianceBernstein
Corporation (an indirect wholly-owned subsidiary of AXA, “General Partner”) is
the general partner of both Holding and AllianceBernstein. AllianceBernstein
Corporation owns 100,000 general partnership units in Holding and a 1% general
partnership interest in AllianceBernstein. Each general partnership unit in
Holding is entitled to receive quarterly distributions equal to those received
by each limited partnership unit. Including the general partnership interests
in
AllianceBernstein and Holding, and their equity interest in Holding, as of
December 31, 2006, AXA and its subsidiaries had an approximate 60.3%
economic interest in AllianceBernstein.
2.
|
Summary
of Significant Accounting
Policies
|
Basis
of Presentation
The
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of the consolidated financial statements requires management to
make
certain estimates and assumptions that affect the reported amounts of assets
and
liabilities and disclosure of contingent assets and liabilities at the dates
of
the consolidated financial statements and the reported amounts of revenues
and
expenses during the reporting periods. Actual results could differ from those
estimates.
Principles
of Consolidation
The
consolidated financial statements include AllianceBernstein and its
majority-owned and/or controlled subsidiaries. All significant inter-company
transactions and balances among the consolidated entities have been
eliminated.
The
equity method of accounting is used for unconsolidated joint ventures and,
in
accordance with Emerging Issues Task Force D-46, “Accounting
for Limited Partnership Investments”,
for
investments made in limited partnership hedge funds that we sponsor and manage.
The investments are included in “other investments” on the consolidated balance
sheets and the related investment income and gains and losses are included
in
“other revenues” on the consolidated statements of income.
Variable
Interest Entities
In
accordance with FASB Interpretation No. 46 (revised December 2003)
(“FIN 46-R”), “Consolidation
of Variable Interest Entities”,
management reviews quarterly its management agreements and its investments
in,
and other financial arrangements with, certain entities that hold client assets
under management to determine the entities that the company is required to
consolidate under FIN 46-R. These include certain mutual fund products, hedge
funds, structured products, group trusts, and joint ventures.
We
derive
no benefit from client assets under management of these entities other than
investment management fees and cannot utilize those assets in our
operations.
As
of
December 31, 2006, we have significant variable interests in certain structured
products and hedge funds with approximately $226.4 million in client assets
under management. However, these variable interest entities do not require
consolidation because management has determined that we are not the primary
beneficiary. Our maximum exposure to loss in these entities is limited to our
investment of $0.1 million in these entities.
Cash
and Cash Equivalents
Cash
and
cash equivalents include cash on hand, demand deposits and highly liquid
investments including money market accounts with actual maturities of three
months or less. Due to the short-term nature of these instruments, the recorded
value has been determined to approximate fair value.
Fees
Receivable, Net
Fees
receivable are shown net of allowances. An allowance for doubtful accounts
related to investment advisory and services fees is determined through an
analysis of the aging of receivables, assessments of collectibility based on
historical trends and other qualitative and quantitative factors, including
the
following: our relationship with the client, the financial health (or ability
to
pay) of the client, current economic conditions and whether the account is
closed or active.
Collateralized
Securities Transactions
Customers’
securities transactions are recorded on a settlement date basis, with related
commission income and expenses reported on a trade date basis. Receivables
from
and payables to customers include amounts due on cash and margin transactions.
Securities owned by customers are held as collateral for receivables; collateral
is not reflected in the consolidated financial statements. Principal securities
transactions and related expenses are recorded on a trade date
basis.
Sanford
C. Bernstein & Co., LLC (“SCB LLC”) and Sanford C. Bernstein Limited
(“SCBL”), both wholly-owned subsidiaries, account for transfers of financial
assets in accordance with Statement of Financial Accounting Standards
No. 140, “Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities”.
Securities borrowed and securities loaned are recorded at the amount of cash
collateral advanced or received in connection with the transaction and are
included in receivables from and payables to brokers and dealers in the
consolidated statements of financial condition. Securities borrowed transactions
require SCB LLC and SCBL to deposit cash collateral with the lender. With
respect to securities loaned, SCB LLC and SCBL receive cash collateral from
the
borrower. The initial collateral advanced or received approximates or is greater
than the fair value of securities borrowed or loaned. SCB LLC and SCBL monitor
the fair value of the securities borrowed and loaned on a daily basis and
request additional collateral or return excess collateral, as appropriate.
Income or expense is recognized over the life of the transactions.
Investments
Investments,
principally investments in United States Treasury Bills, unconsolidated
company-sponsored mutual funds and securities held by consolidated
company-sponsored mutual funds, are classified as either trading or
available-for-sale securities. The trading investments are stated at fair value
with unrealized gains and losses reported in net income. Available-for-sale
investments are stated at fair value with unrealized gains and losses reported
as a separate component of accumulated other comprehensive income in partners’
capital. Realized gains and losses on the sale of investments are included
in
income in the current period.
Furniture,
Equipment and Leasehold Improvements, Net
Furniture,
equipment and leasehold improvements are stated at cost, less accumulated
depreciation and amortization. Depreciation is recognized on a straight-line
basis over the estimated useful lives of eight years for furniture and three
to
six years for equipment and software. Leasehold improvements are amortized
on a
straight-line basis over the lesser of their estimated useful lives or the
terms
of the related leases.
Goodwill,
Net
On
October 2, 2000, AllianceBernstein acquired the business and assets of SCB
Inc., an investment research and management company formerly known as Sanford
C.
Bernstein Inc. (“Bernstein”), and assumed the liabilities of Bernstein
(“Bernstein Transaction”). The purchase price consisted of a cash payment of
approximately $1.5 billion and 40.8 million newly issued AllianceBernstein
Units. AXA Financial purchased approximately 32.6 million newly issued
AllianceBernstein Units for $1.6 billion on June 21, 2000, to fund the cash
portion of the purchase price.
The
Bernstein Transaction was accounted for under the purchase method with the
results of Bernstein included in the consolidated financial statements from
the
acquisition date. The cost of the acquisition was allocated on the basis of
the
estimated fair value of the assets acquired and the liabilities assumed.
Portions of the purchase price were identified as net tangible assets of $0.1
billion and costs assigned to contracts acquired of $0.4 billion. The excess
of
the purchase price over the fair value of identifiable assets acquired resulted
in the recognition of goodwill of approximately $3.0 billion.
During
the second quarter of 2006, we made an acquisition which resulted in the
recognition of approximately $16.4 million of goodwill (see
Note 20).
In
accordance with Statement of Financial Accounting Standards No. 142 (“SFAS
No. 142”), “Goodwill
and Other Intangible Assets”,
we test
goodwill at least annually, as of September 30, for impairment. As of
September 30, 2006, the impairment test indicated that goodwill was not
impaired. Also, as of December 31, 2006, management believes that goodwill
was not impaired. However, future tests may be based upon different assumptions
which may or may not result in an impairment of this asset. Any impairment
could
reduce materially the recorded amount of the goodwill asset with a corresponding
charge to our earnings.
Intangible
Assets, Net
Intangible
assets consist primarily of costs assigned to investment management contracts
of
SCB Inc. less accumulated amortization. In order to determine the fair market
value and the remaining useful lives of these investment management contracts,
we performed an analysis as of the acquisition date that considered the
following factors:
|
|
The
nature and characteristics of the intangible assets,
including:
|
|
|
The
historical and expected future economic benefits associated with
the
assets as of the valuation date,
|
|
|
The
historical and expected attrition associated with the assets,
and
|
|
|
Any
special rights associated with the
assets;
|
|
|
The
historical and then-current financial condition and operating results
of
SCB Inc.;
|
|
|
Discussions
with management of SCB Inc. and others to augment our understanding
of the
nature of the intangible assets;
and
|
|
|
Reviews
of market data and other available information relating to SCB Inc.
and
the investment management industry.
|
As
a
result of the analysis, management determined that the intangible assets have
an
estimated useful life of approximately 20 years.
The
gross
carrying amount of intangible assets subject to amortization totaled $414.3
million and $414.0 million as of December 31, 2006 and 2005,
respectively, and accumulated amortization was $129.4 million as of
December 31, 2006 and $108.7 million as of December 31, 2005,
resulting in the net carrying amount of intangible assets subject to
amortization of $284.9 million as of December 31, 2006 and $305.3 million as
of
December 31, 2005. Amortization expense was $20.7 million for each of the
years ended December 31, 2006, 2005, and 2004, and estimated amortization
expense for each of the next five years is approximately
$20.7 million.
Management
tests intangible assets for impairment quarterly. As of December 31, 2006,
management believes that intangible assets were not impaired. However, future
tests may be based upon different assumptions which may or may not result in
an
impairment of this asset. Any impairment could reduce materially the recorded
amount of intangible assets with a corresponding charge to our
earnings.
Deferred
Sales Commissions, Net
We
pay
commissions to financial intermediaries in connection with the sale of shares
of
open-end company-sponsored mutual funds sold without a front-end sales charge
(“back-end load shares”). These commissions are capitalized as deferred sales
commissions and amortized over periods not exceeding five and one-half years
for
U.S. fund shares and four years for non-U.S. fund shares, the periods of time
during which deferred sales commissions are generally recovered. We recover
these commissions from distribution services fees received from those funds
and
from contingent deferred sales commissions (“CDSC”) received from shareholders
of those funds upon the redemption of their shares. CDSC cash recoveries are
recorded as reductions of unamortized deferred sales commissions when
received.
Management
tests the deferred sales commission asset for recoverability quarterly.
Significant assumptions utilized to estimate the company’s future average assets
under management and undiscounted future cash flows from back-end load shares
include expected future market performance and redemption rates. Estimates
of
undiscounted future cash flows and the remaining life of the deferred sales
commission asset are made from these assumptions and the aggregate undiscounted
future cash flows are compared to the recorded value of the deferred sales
commission asset. Management considers the results of these analyses performed
at various dates. If management determines in the future that an impairment
exists, a loss would be recorded. The amount of the loss would be measured
as
the amount by which the recorded amount of the asset exceeds its estimated
fair
value. Estimated fair value is determined using management’s best estimate of
future cash flows discounted to a present value amount.
Loss
Contingencies
With
respect to all significant litigation matters, we conduct a probability
assessment of the likelihood of a negative outcome. If we determine the
likelihood of a negative outcome is probable, and the amount of the loss can
be
reasonably estimated, we record an estimated loss for the expected outcome
of
the litigation as required by Statement of Financial Accounting Standards
No. 5 (“SFAS No. 5”), “Accounting
for Contingencies”,
and
Financial Accounting Standards Board (“FASB”) Interpretation No. 14 (“FIN
No. 14”), “Reasonable
Estimation of the Amount of a Loss - an interpretation of FASB Statement
No. 5”.
If the
likelihood of a negative outcome is reasonably possible and we are able to
indicate an estimate of the possible loss or range of loss, we disclose that
fact together with the estimate of the possible loss or range of loss. However,
it is difficult to predict the outcome or estimate a possible loss or range
of
loss because litigation is subject to significant uncertainties, particularly
when plaintiffs allege substantial or indeterminate damages, or when the
litigation is highly complex or broad in scope.
Revenue
Recognition
Investment
advisory and services base fees, generally calculated as a percentage of assets
under management, are recorded as revenue as the related services are performed.
Certain investment advisory contracts provide for a performance-based fee,
in
addition to or in lieu of a base fee, which 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. Performance-based fees
are recorded as revenue at the end of each measurement period. Institutional
research services revenue consists of brokerage transaction charges received
by
SCB LLC and SCBL for in-depth research and brokerage-related services provided
to institutional investors. Brokerage transaction charges earned and related
expenses are recorded on a trade date basis. Distribution revenues, shareholder
servicing fees, and interest income are accrued as earned.
Mutual
Fund Underwriting Activities
Purchases
and sales of shares of our mutual funds in connection with the underwriting
activities of our subsidiaries, including related commission income, are
recorded on trade date. Receivables from brokers and dealers for sale of shares
of our mutual funds are generally realized within three business days from
trade
date, in conjunction with the settlement of the related payables to our mutual
funds for share purchases. Distribution plan and other promotion and servicing
payments are recognized as an expense when incurred.
Deferred
Compensation Plans
We
maintain several unfunded, non-qualified deferred compensation plans under
which
annual awards to employees are generally made in the fourth quarter.
Participants allocate their awards among notional investments in Holding Units,
certain of our investment services we provide to our clients, or a money market
fund, or investments in options to buy Holding Units. We typically purchase
the
investments that are notionally elected by the participants and hold such
investments, which are classified as trading securities, in a consolidated
rabbi
trust. Vesting periods for annual awards range from immediate to four years,
depending on the terms of the individual awards, the age of the participants,
or
in the case of our Chairman and CEO, the terms of his employment agreement.
Upon
vesting, awards are distributed to participants unless they have made a
voluntary long-term election to defer receipt. Quarterly cash distributions
on
unvested Holding Units for which a long-term deferral election has not been
made
are paid currently to participants. Quarterly cash distributions on notional
investments of Holding Units and income credited on notional investments in
our
investment services or the money market fund for which a long-term deferral
election has been made are reinvested and distributed as elected by
participants.
Compensation
expense for awards under the plans, including changes in participant account
balances resulting from gains and losses on notional investments (other than
in
Holding Units), is recognized on a straight-line basis over the applicable
vesting periods. Mark-to-market gains or losses on notional investments (other
than in Holding Units) are recognized currently as investment gains (losses)
in
the consolidated statements of income.
Compensatory
Option Plans
In
December 2004, the FASB issued Statement of Financial Accounting Standards
No. 123 (revised 2004), (“SFAS No. 123-R”), “Share
Based Payment”.
SFAS
No. 123-R requires that compensation cost related to share-based payments,
based on the fair value of the equity instruments issued, be recognized in
financial statements. SFAS No. 123-R supersedes Accounting Principles Board
Opinion No. 25 (“APB No. 25”), “Accounting
for Stock Issued to Employees”,
and
its related implementation guidance. We adopted SFAS No. 123-R effective
January 1, 2006 utilizing the modified prospective method. Prior period
amounts have not been restated.
Prior
to
January 1, 2006, we utilized the fair value method of recording compensation
expense (including a straight-line amortization policy), related to compensatory
option awards of Holding Units granted subsequent to 2001, as permitted by
Statement of Financial Accounting Standards No. 123
(“SFAS No. 123”), “Accounting
for Stock-Based Compensation”,
as
amended by Statement of Financial Accounting Standards No. 148
(“SFAS No. 148”), “Accounting
for Stock-Based Compensation—Transition and Disclosure”.
Under
the fair value method, compensation expense is measured at the grant date based
on the estimated fair value of the award (determined using the Black-Scholes
option valuation model) and is recognized over the vesting period.
For
compensatory option awards granted prior to 2002, we applied the provisions
of
APB No. 25, under which compensation expense is recognized only if the
market value of the underlying Holding Units exceeds the exercise price at
the
date of grant. We did not record compensation expense for compensatory option
awards made prior to 2002 because those options were granted with exercise
prices equal to the market value of the underlying Holding Units on the date
of
grant. Had we recorded compensation expense for those options based on their
fair value at grant date under SFAS No. 123, net income for 2005 and
2004 would have been reduced to the pro forma amounts indicated
below:
|
|
Years Ended December 31,
|
|
|
|
2005
|
|
2004
|
|
|
|
(in thousands, except
per unit amounts)
|
|
SFAS
No. 123 pro forma net income:
|
|
|
|
|
|
|
|
Net
income as reported
|
|
$
|
868,318
|
|
$
|
705,150
|
|
Add:
stock-based compensation expense included in net income, net of
tax
|
|
|
2,040
|
|
|
2,231
|
|
Deduct:
total stock-based compensation expense determined under fair value
method
for all awards, net of tax
|
|
|
(3,918
|
)
|
|
(7,132
|
)
|
SFAS
No. 123 pro forma net income
|
|
$
|
866,440
|
|
$
|
700,249
|
|
Net
income per unit:
|
|
|
|
|
|
|
|
Basic
net income per unit as reported
|
|
$
|
3.37
|
|
$
|
2.76
|
|
Basic
net income per unit pro forma
|
|
$
|
3.37
|
|
$
|
2.74
|
|
Diluted
net income per unit as reported
|
|
$
|
3.35
|
|
$
|
2.74
|
|
Diluted
net income per unit pro forma
|
|
$
|
3.34
|
|
$
|
2.72
|
|
Foreign
Currency Translation
Assets
and liabilities of foreign subsidiaries are translated into United States
dollars (“US$”) at exchange rates in effect at the balance sheet dates, and
related revenues and expenses are translated into US$ at average exchange
rates in effect during each period. Net foreign currency gains and losses
resulting from the translation of assets and liabilities of foreign operations
into US$ are reported as a separate component of accumulated other comprehensive
income in the consolidated statements of changes in partners’ capital and
comprehensive income. Net realized foreign currency transaction losses were
$0.2
million, $0.7 million, and $1.8 million for 2006, 2005, and 2004,
respectively.
Cash
Distributions
AllianceBernstein
is required to distribute all of its Available Cash Flow, as defined in the
Amended and Restated Agreement of Limited Partnership of AllianceBernstein
(“AllianceBernstein Partnership Agreement”), to its unitholders and to its
General Partner. Available Cash Flow can be summarized as the cash flow received
by AllianceBernstein from operations minus such amounts as the General Partner
determines, in its sole discretion, should be retained by AllianceBernstein
for
use in its business. The General Partner computes cash flow received from
operations by determining the sum of:
|
•
|
net
cash provided by operating activities of
AllianceBernstein,
|
|
•
|
proceeds
from borrowings and from sales or other dispositions of assets in
the
ordinary course of business, and
|
|
•
|
income
from investments in marketable securities, liquid investments, and
other
financial instruments that are acquired for investment purposes and
that
have a value that may be readily
established,
|
and
then
subtracting from this amount the sum of:
|
•
|
payments
in respect of the principal of borrowings,
and
|
|
•
|
amounts
expended for the purchase of assets in the ordinary course of
business.
|
On
January 24, 2007, the General Partner declared a distribution of $418.7
million, or $1.60 per AllianceBernstein Unit, representing a distribution from
Available Cash Flow for the three months ended December 31, 2006. The
distribution was paid on February 15, 2007 to holders of record as of
February 5, 2007.
Comprehensive
Income
Total
accumulated other comprehensive income is reported in the consolidated
statements of changes in partners’ capital and comprehensive income and includes
net income, unrealized gains and losses on investments classified as
available-for-sale, foreign currency translation adjustments, and unrecognized
actuarial net losses, prior service cost and transition assets. The accumulated
balance of comprehensive income items is displayed separately in the partners’
capital section of the consolidated statements of financial
condition.
Reclassifications
Certain
prior period amounts have been reclassified to conform to the current period
presentation. These include the following reclassifications in the consolidated
statements of income:
|
•
|
the
reclassification of $31.5 million and $116.5 million of transaction
charge
revenues from investment advisory and services fees to institutional
research services for the years ended December 31, 2005 and 2004,
respectively;
|
|
•
|
gains
on dispositions (previously included in other revenues) and related
expenses (previously included in employee compensation and benefits
and
general and administrative) are now classified as non-operating
income;
|
|
•
|
dividend
and interest income, investment gains and losses, and broker-dealer
related interest expense, previously included in other revenues,
are now
shown separately; and
|
|
•
|
shareholder
servicing fees ($99.4 million and $116.0 million for the years ended
December 31, 2005 and 2004, respectively), previously shown separately,
are now included in other revenues.
|
3.
|
Cash
and Securities Segregated Under Federal Regulations and Other
Requirements
|
As
of
December 31, 2006 and 2005, $1.9 billion and $1.7 billion, respectively, of
United States Treasury Bills were segregated in a special reserve bank custody
account for the exclusive benefit of brokerage customers of SCB LLC under
Rule 15c3-3 of the Securities Exchange Act of 1934, as amended (“Exchange
Act”). During the first week of January 2007, we deposited an additional $0.2
billion in United States Treasury Bills in this special account pursuant to
Rule
15c 3-3 requirements.
Basic
net
income per unit is derived by reducing net income for the 1% general partnership
interest and dividing the remaining 99% by the basic weighted average number
of
units outstanding for each year. Diluted net income per unit is derived by
reducing net income for the 1% general partnership interest and dividing
the remaining
99% by the total of the basic weighted average number of units outstanding
and
the dilutive unit equivalents resulting from outstanding compensatory options
as
follows:
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
(in thousands, except per unit amounts)
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
1,108,601
|
|
$
|
868,318
|
|
$
|
705,150
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average units outstanding—basic
|
|
|
257,719
|
|
|
254,883
|
|
|
253,121
|
|
Dilutive
effect of compensatory options
|
|
|
2,243
|
|
|
1,714
|
|
|
1,644
|
|
Weighted
average units outstanding—diluted
|
|
|
259,962
|
|
|
256,597
|
|
|
254,765
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per unit
|
|
$
|
4.26
|
|
$
|
3.37
|
|
$
|
2.76
|
|
Diluted
net income per unit
|
|
$
|
4.22
|
|
$
|
3.35
|
|
$
|
2.74
|
|
As
of
December 31, 2006, there were no out-of-the-money options (i.e., options with
an
exercise price greater than the weighted average closing price of a unit for
the
year). As of December 31, 2005 and 2004, we excluded 3,950,100 and 4,336,500
out-of-the-money options, respectively, from the diluted net income per unit
computation due to their anti-dilutive effect.
5.
|
Receivables,
Net and Payables
|
Receivables,
net are comprised of:
|
|
December 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
Brokers
and dealers:
|
|
|
|
|
|
|
|
Collateral
for securities borrowed (fair value $2,117,885 in 2006 and $1,893,594
in
2005)
|
|
$
|
2,182,167
|
|
$
|
1,966,000
|
|
Other
|
|
|
263,385
|
|
|
127,461
|
|
Total
brokers and dealers
|
|
|
2,445,552
|
|
|
2,093,461
|
|
Brokerage
clients
|
|
|
485,446
|
|
|
429,586
|
|
Fees,
net:
|
|
|
|
|
|
|
|
AllianceBernstein
mutual funds
|
|
|
180,260
|
|
|
143,737
|
|
Unaffiliated
clients (net of allowance of $1,113 in 2006 and $939 in 2005)
|
|
|
369,690
|
|
|
262,279
|
|
Affiliated
clients
|
|
|
7,330
|
|
|
7,182
|
|
Total
fees receivable, net
|
|
|
557,280
|
|
|
413,198
|
|
Total
receivables, net
|
|
$
|
3,488,278
|
|
$
|
2,936,245
|
|
Payables
are comprised of:
|
|
December 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
Brokers
and dealers:
|
|
|
|
|
|
|
|
Collateral
for securities loaned (fair value $470,798 in 2006 and $942,985 in
2005)
|
|
$
|
489,093
|
|
$
|
976,985
|
|
Other
|
|
|
172,697
|
|
|
80,289
|
|
Total
brokers and dealers
|
|
|
661,790
|
|
|
1,057,274
|
|
Brokerage
clients
|
|
|
3,988,032
|
|
|
2,929,500
|
|
AllianceBernstein
mutual funds
|
|
|
266,849
|
|
|
140,603
|
|
Total
payables
|
|
$
|
4,916,671
|
|
$
|
4,127,377
|
|
As
of
December 31, 2006 and 2005, investments consisted of investments
available-for-sale, principally company-sponsored mutual funds, and trading
investments, principally United States Treasury Bills and company-sponsored
mutual funds. As of December 31, 2006 and 2005, United States Treasury Bills
with a fair market value of $17.0 million and $16.9 million, respectively,
were
on deposit with various clearing organizations.
The
following is a summary of the cost and fair value of investments as of
December 31, 2006 and 2005:
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2006:
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
investments
|
|
$
|
39,232
|
|
$
|
8,665
|
|
$
|
(3
|
)
|
$
|
47,894
|
|
Fixed
income investments
|
|
|
31,476
|
|
|
486
|
|
|
(5
|
)
|
|
31,957
|
|
|
|
|
70,708
|
|
|
9,151
|
|
|
(8
|
)
|
|
79,851
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
investments
|
|
|
407,790
|
|
|
34,264
|
|
|
(9,921
|
)
|
|
432,133
|
|
Fixed
income investments
|
|
|
31,155
|
|
|
517
|
|
|
(3
|
)
|
|
31,669
|
|
|
|
|
438,945
|
|
|
34,781
|
|
|
(9,924
|
)
|
|
463,802
|
|
Total
investments
|
|
$
|
509,653
|
|
$
|
43,932
|
|
$
|
(9,932
|
)
|
$
|
543,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
investments
|
|
$
|
26,787
|
|
$
|
3,777
|
|
$
|
(18
|
)
|
$
|
30,546
|
|
Fixed
income investments
|
|
|
1,102
|
|
|
181
|
|
|
(5
|
)
|
|
1,278
|
|
|
|
|
27,889
|
|
|
3,958
|
|
|
(23
|
)
|
|
31,824
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
investments
|
|
|
262,153
|
|
|
23,701
|
|
|
(3,135
|
)
|
|
282,719
|
|
Fixed
income investments
|
|
|
30,503
|
|
|
290
|
|
|
(291
|
)
|
|
30,502
|
|
|
|
|
292,656
|
|
|
23,991
|
|
|
(3,426
|
)
|
|
313,221
|
|
Total
investments
|
|
$
|
320,545
|
|
$
|
27,949
|
|
$
|
(3,449
|
)
|
$
|
345,045
|
|
Proceeds
from sales of investments available-for-sale were approximately $12.8 million,
$12.7 million, and $38.0 million in 2006, 2005, and 2004, respectively. Net
realized gains from our sales of available-for-sale investments were $1.0
million, $0.9 million, and $2.4 million in 2006, 2005, and 2004,
respectively.
We
assess
valuation declines to determine the extent to which such declines are
fundamental to the underlying investment or attributable to market-related
factors. Based on this assessment, we do not believe the declines are other
than
temporary.
7.
|
Furniture,
Equipment and Leasehold Improvements,
Net
|
Furniture,
equipment and leasehold improvements, net are comprised of:
|
|
December 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Furniture
and equipment
|
|
$
|
426,848
|
|
$
|
369,092
|
|
Leasehold
improvements
|
|
|
254,421
|
|
|
217,137
|
|
|
|
|
681,269
|
|
|
586,229
|
|
Less:
Accumulated depreciation and amortization
|
|
|
(392,694
|
)
|
|
(349,920
|
)
|
Furniture,
equipment and leasehold improvements, net
|
|
$
|
288,575
|
|
$
|
236,309
|
|
Depreciation
and amortization expense on furniture, equipment, and leasehold improvements
were $43.8 million, $45.8 million, and $52.7 million for the years ended
December 31, 2006, 2005, and 2004, respectively.
8.
|
Deferred
Sales Commissions, Net
|
The
components of deferred sales commissions, net for the years ended
December 31, 2006 and 2005 were as follows:
|
|
December 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Gross
carrying amount of deferred sales commissions
|
|
$
|
530,231
|
|
$
|
692,148
|
|
Less:
Accumulated amortization
|
|
|
(250,626
|
)
|
|
(421,620
|
)
|
Cumulative
CDSC received
|
|
|
(84,655
|
)
|
|
(73,891
|
)
|
Deferred
sales commissions, net
|
|
$
|
194,950
|
|
$
|
196,637
|
|
Amortization
expense was $100.4 million, $132.0 million, and $177.4 million for the
years ended December 31, 2006, 2005, and 2004, respectively. Estimated
future amortization expense related to the December 31, 2006 net asset
balance is as follows (in thousands):
2007
|
|
$
|
77,776
|
|
2008
|
|
|
54,145
|
|
2009
|
|
|
39,303
|
|
2010
|
|
|
18,334
|
|
2011
|
|
|
4,866
|
|
2012
|
|
|
526
|
|
|
|
$
|
194,950
|
|
Other
investments consist of investments made primarily to seed limited partnership
hedge funds that we sponsor and manage, securities held by a consolidated
venture capital fund, and investments in unconsolidated joint ventures. The
components of other investments as of December 31, 2006 and 2005 were as
follows:
|
|
December 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Investments
in sponsored partnerships and other investments
|
|
$
|
168,324
|
|
$
|
77,856
|
|
Securities
held by a consolidated venture capital fund
|
|
|
33,996
|
|
|
—
|
|
Investments
in unconsolidated affiliates
|
|
|
1,630
|
|
|
8,513
|
|
Other
investments
|
|
$
|
203,950
|
|
$
|
86,369
|
|
Total
available credit, debt outstanding and weighted average interest rates as of
December 31, 2006 and 2005 were as follows:
|
|
December 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
Credit
Available
|
|
Debt
Outstanding
|
|
Interest
Rate
|
|
Credit
Available
|
|
Debt
Outstanding
|
|
Interest
Rate
|
|
|
|
(in millions)
|
|
|
|
|
|
Senior
notes
|
|
$
|
200.0
|
|
$
|
—
|
|
|
—
|
%
|
$
|
600.0
|
|
$
|
399.7
|
|
|
5.6
|
%
|
Commercial
paper(1)
|
|
|
800.0
|
|
|
334.9
|
|
|
5.3
|
|
|
425.0
|
|
|
—
|
|
|
—
|
|
Revolving
credit facility(1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
375.0
|
|
|
—
|
|
|
—
|
|
Extendible
commercial notes
|
|
|
100.0
|
|
|
—
|
|
|
—
|
|
|
100.0
|
|
|
—
|
|
|
—
|
|
Other
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
n/a
|
|
|
7.6
|
|
|
4.6
|
|
Total
|
|
$
|
1,100.0
|
|
$
|
334.9
|
|
|
5.3
|
|
$
|
1,500.0
|
|
$
|
407.3
|
|
|
5.6
|
|
____________________
(1)
|
Our
revolving credit facility supports our commercial paper program;
amounts
borrowed under the commercial paper program reduce amounts available
for
other purposes under the revolving credit facility on a dollar-for-dollar
basis.
|
In
August 2001, we issued $400 million 5.625% Notes (“Senior Notes”) pursuant
to a shelf registration statement that originally permitted us to issue up
to
$600 million in senior debt securities. The Senior Notes matured in August
2006,
and were retired using cash flow from operations and proceeds from the issuance
of commercial paper. We currently have $200 million available under the shelf
registration statement for future issuances.
In
February 2006, we entered into an $800 million five-year revolving credit
facility with a group of commercial banks and other lenders. The revolving
credit facility is intended to provide back-up liquidity for our commercial
paper program, which we increased from $425 million to $800 million in
May 2006. Under the revolving credit facility, the interest rate, at our
option, is a floating rate generally based upon a defined prime rate, a rate
related to the London Interbank Offered Rate (LIBOR) or the Federal Funds rate.
The revolving credit facility contains covenants which, among other things,
require us to meet certain financial ratios. We were in compliance with the
covenants as of December 31, 2006.
As
of
December 31, 2006, we maintained a $100 million extendible commercial notes
(“ECN”) program as a supplement to our commercial paper program. ECNs are
short-term uncommitted debt instruments that do not require back-up liquidity
support.
In
2006,
SCB LLC entered into four separate uncommitted credit facility agreements with
various banks, each for $100 million. As of December 31, 2006, there were no
amounts outstanding under these credit facilities. During January and February
of 2007, SCB LLC increased three of the agreements to $200 million each and
entered into an additional agreement for $100 million with a new
bank.
11.
|
Commitments
and Contingencies
|
Operating
Leases
We
lease
office space, furniture and office equipment under various operating leases.
The
future minimum payments under non-cancelable leases, sublease commitments,
and
payments, net of sublease commitments as of December 31, 2006 are as
follows:
|
|
Payments
|
|
Sublease
|
|
Net
Payments
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
2007
|
|
$
|
100.7
|
|
$
|
3.9
|
|
$
|
96.8
|
|
2008
|
|
|
101.8
|
|
|
3.3
|
|
|
98.5
|
|
2009
|
|
|
96.5
|
|
|
3.0
|
|
|
93.5
|
|
2010
|
|
|
98.3
|
|
|
3.0
|
|
|
95.3
|
|
2011
|
|
|
95.6
|
|
|
3.0
|
|
|
92.6
|
|
2012
and thereafter
|
|
|
1,406.3
|
|
|
16.1
|
|
|
1,390.2
|
|
Total
future minimum payments
|
|
$
|
1,899.2
|
|
$
|
32.3
|
|
$
|
1,866.9
|
|
Office
leases contain escalation clauses that provide for the pass through of increases
in operating expenses and real estate taxes. Rent expense, which is amortized
on
a straight-line basis over the life of the lease, was $99.7 million, $76.0
million, and $78.5 million, respectively, for the years ended December 31,
2006, 2005, and 2004, respectively, net of sublease income of $3.7 million,
$5.9
million, and $5.3 million for the years ended December 31, 2006, 2005, and
2004, respectively.
Deferred
Sales Commission Asset
Payments
of sales commissions made by AllianceBernstein Investments, Inc.
(“AllianceBernstein Investments”), a wholly-owned subsidiary of
AllianceBernstein, to financial intermediaries in connection with the sale
of
back-end load shares under our mutual fund distribution system (the “System”)
are capitalized as deferred sales commissions (“deferred sales commission
asset”) and amortized over periods not exceeding five and one-half years for
U.S. fund shares and four years for non-U.S. fund shares, the periods of time
during which the deferred sales commission asset is expected to be recovered.
CDSC cash recoveries are recorded as reductions of unamortized deferred sales
commissions when received. The amount recorded for the net deferred sales
commission asset was $195.0 million and $196.6 million as of December 31,
2006 and 2005, respectively. Payments of sales commissions made by
AllianceBernstein Investments to financial intermediaries in connection with
the
sale of back-end load shares under the System, net of CDSC received of $23.7
million, $21.4 million, and $32.9 million, respectively, totaled approximately
$98.7 million, $74.2 million, and $44.6 million during 2006, 2005, and
2004, respectively.
Management
tests the deferred sales commission asset for recoverability quarterly.
Significant assumptions utilized to estimate the company’s future average assets
under management and undiscounted future cash flows from back-end load shares
include expected future market levels and redemption rates. Market assumptions
are selected using a long-term view of expected average market returns based
on
historical returns of broad market indices. As of December 31, 2006,
management used average market return assumptions of 5% for fixed income and
8%
for equity to estimate annual market returns. Higher actual average market
returns would increase undiscounted future cash flows, while lower actual
average market returns would decrease undiscounted future cash flows. Future
redemption rate assumptions range from 24% to 26% for U.S. fund shares and
21%
to 29% for non-U.S. fund shares, determined by reference to actual redemption
experience over the five-year, three-year, and one-year periods ended
December 31, 2006, calculated as a percentage of the company’s average
assets under management represented by back-end load shares. An increase in
the
actual rate of redemptions would decrease undiscounted future cash flows, while
a decrease in the actual rate of redemptions would increase undiscounted future
cash flows. These assumptions are reviewed and updated quarterly. Estimates
of
undiscounted future cash flows and the remaining life of the deferred sales
commission asset are made from these assumptions and the aggregate undiscounted
future cash flows are compared to the recorded value of the deferred sales
commission asset. As of December 31, 2006, management determined that the
deferred sales commission asset was not impaired. If management determines
in
the future that the deferred sales commission asset is not recoverable, an
impairment condition would exist and a loss would be measured as the amount
by
which the recorded amount of the asset exceeds its estimated fair value.
Estimated fair value is determined using management’s best estimate of future
cash flows discounted to a present value amount.
During
2006, U.S. equity markets increased by approximately 15.8% as measured by the
change in the Standard & Poor’s 500 Stock Index and U.S. fixed income
markets increased by approximately 4.3% as measured by the change in the Lehman
Brothers’ Aggregate Bond Index. The redemption rate for domestic back-end load
shares was 25.0% in 2006. Non-U.S. capital markets increases ranged from 20.1%
to 32.2% as measured by the MSCI World, Emerging Market, and EAFE Index. The
redemption rate for non-U.S. back-end load shares was 29.1% in 2006. Declines
in
financial markets or higher redemption levels, or both, as compared to the
assumptions used to estimate undiscounted future cash flows, as described above,
could result in the impairment of the deferred sales commission asset. Due
to
the volatility of the capital markets and changes in redemption rates,
management is unable to predict whether or when a future impairment of the
deferred sales commission asset might occur. Any impairment would reduce
materially the recorded amount of the deferred sales commission asset with
a
corresponding charge to earnings.
Legal
Proceedings
With
respect to all significant litigation matters, we conduct a probability
assessment of the likelihood of a negative outcome. If we determine the
likelihood of a negative outcome is probable, and the amount of the loss can
be
reasonably estimated, we record an estimated loss for the expected outcome
of
the litigation as required by SFAS No. 5 and FIN No. 14. If the
likelihood of a negative outcome is reasonably possible and we are able to
indicate an estimate of the possible loss or range of loss, we disclose that
fact together with the estimate of the possible loss or range of loss. However,
it is difficult to predict the outcome or estimate a possible loss or range
of
loss because litigation is subject to significant uncertainties, particularly
when plaintiffs allege substantial or indeterminate damages, or when the
litigation is highly complex or broad in scope.
On
April 8, 2002, In
re
Enron Corporation Securities Litigation,
a
consolidated complaint (as subsequently amended, “Enron Complaint”) was filed in
the United States District Court for the Southern District of Texas, Houston
Division, against numerous defendants, including AllianceBernstein, alleging
that AllianceBernstein violated Sections 11 and 15 of the Securities Act of
1933, as amended (“Securities Act”), with respect to a registration statement
filed by Enron Corp. On January 2, 2007, the court issued a final judgment
dismissing the Enron Complaint as the allegations therein pertained to
AllianceBernstein. The parties have agreed that there will be no
appeal.
Market
Timing-related Matters
On
October 2, 2003, a purported class action complaint
entitled
Hindo, et al. v. AllianceBernstein Growth & Income Fund, et
al.
(“Hindo
Complaint”) was filed against AllianceBernstein, Holding, the General Partner,
AXA Financial, the AllianceBernstein-sponsored mutual funds (“U.S. Funds”) that
are registered under the Investment Company Act of 1940, as amended (“Investment
Company Act”), the registrants and issuers of those funds, certain officers of
AllianceBernstein (“AllianceBernstein defendants”), and certain unaffiliated
defendants, as well as unnamed Doe defendants. The Hindo Complaint was filed
in
the United States District Court for the Southern District of New York by
alleged shareholders of two of the U.S. Funds. The Hindo Complaint alleges
that
certain of the AllianceBernstein defendants failed to disclose that they
improperly allowed certain hedge funds and other unidentified parties to engage
in “late trading” and “market timing” of U.S. Fund securities, violating
Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of
the Exchange Act, and Sections 206 and 215 of the Investment Advisers Act of
1940, as amended (“Advisers Act”). Plaintiffs seek an unspecified amount of
compensatory damages and rescission of their contracts with AllianceBernstein,
including recovery of all fees paid to AllianceBernstein pursuant to such
contracts.
Following
October 2, 2003, additional lawsuits making factual allegations generally
similar to those in the Hindo Complaint were filed in various federal and state
courts against AllianceBernstein and certain other defendants. All state court
actions against AllianceBernstein either were voluntarily dismissed or removed
to federal court. On February 20, 2004, the Judicial Panel on Multidistrict
Litigation transferred all federal actions to the United States District Court
for the District of Maryland (“Mutual Fund MDL”). On
September 29, 2004, plaintiffs filed consolidated amended complaints with
respect to four claim types: mutual fund shareholder claims; mutual fund
derivative claims; derivative claims brought on behalf of Holding; and claims
brought under the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”) by participants in the Profit Sharing Plan for Employees of
AllianceBernstein. All four complaints included substantially identical factual
allegations, which appear to be based in large part on the Order of the U.S.
Securities and Exchange Commission (“SEC”) dated December 18, 2003 (as amended
and restated January 15, 2004, “SEC Order”) and the New York State Attorney
General Assurance of Discontinuance dated September 1, 2004 (“NYAG AoD”).
On
April 21, 2006, AllianceBernstein and attorneys for the plaintiffs in the
mutual fund shareholder claims, mutual fund derivative claims, and ERISA claims
entered into a confidential memorandum of understanding (“MOU”) containing their
agreement to settle these claims. The agreement will be documented by a
stipulation of settlement and will be submitted for court approval at a later
date. The settlement amount ($30 million), which we previously accrued and
disclosed, has been disbursed. The derivative claims brought on behalf of
Holding, in which plaintiffs seek an unspecified amount of damages, remain
pending.
We
intend
to vigorously defend against the lawsuit involving derivative claims brought
on
behalf of Holding. At the present time, we are unable to predict the outcome
or
estimate a possible loss or range of loss in respect of this matter because
of
the inherent uncertainty regarding the outcome of complex litigation, and the
fact that the plaintiffs did not specify an amount of damages sought in their
complaint.
On
April 11, 2005, a complaint entitled
The
Attorney General of the State of West Virginia v. AIM Advisors, Inc., et
al.
(“WVAG
Complaint”) was filed against AllianceBernstein, Holding, and various
unaffiliated defendants. The WVAG Complaint was filed in the Circuit Court
of
Marshall County, West Virginia by the Attorney General of the State of West
Virginia. The WVAG Complaint makes factual allegations generally similar to
those in the Hindo Complaint. On October 19, 2005, the WVAG Complaint was
transferred to the Mutual Fund MDL. On August 30, 2005, the WV Securities
Commissioner signed a Summary Order to Cease and Desist, and Notice of Right
to
Hearing (“Summary Order”) addressed to AllianceBernstein and Holding. The
Summary Order claims that AllianceBernstein and Holding violated the West
Virginia Uniform Securities Act and makes factual allegations generally
similar to those in the SEC Order and NYAG AoD. On January 25, 2006,
AllianceBernstein and Holding moved to vacate the Summary Order. In early
September 2006, the court denied this motion, and the Supreme Court of Appeals
in West Virginia denied our petition for appeal. On September 22, 2006, we
filed
an answer and moved to dismiss the Summary Order with the WV Securities
Commissioner.
We
intend
to vigorously defend against the allegations in the WVAG Complaint and the
Summary Order. At the present time, we are unable to predict the outcome or
estimate a possible loss or range of loss in respect of these matters because
of
the inherent uncertainty regarding the outcome of complex litigation, the fact
that plaintiffs did not specify an amount of damages sought in their complaint,
and the fact that, to date, we have not engaged in settlement
negotiations.
Revenue
Sharing-related Matters
On
June 22, 2004, a purported class action complaint entitled
Aucoin, et al. v. Alliance Capital Management L.P., et al.
(“Aucoin Complaint”) was filed against AllianceBernstein, Holding, the General
Partner, AXA Financial, AllianceBernstein Investments, certain current and
former directors of the U.S. Funds, and unnamed Doe defendants. The Aucoin
Complaint names the U.S. Funds as nominal defendants. The Aucoin Complaint
was
filed in the United States District Court for the Southern District of New
York
by alleged shareholders of the AllianceBernstein Growth & Income Fund.
The Aucoin Complaint alleges, among other things, (i) that certain of the
defendants improperly authorized the payment of excessive commissions and other
fees from U.S. Fund assets to broker-dealers in exchange for preferential
marketing services, (ii) that certain of the defendants misrepresented and
omitted from registration statements and other reports material facts concerning
such payments, and (iii) that certain defendants caused such conduct as
control persons of other defendants. The Aucoin Complaint asserts claims for
violation of Sections 34(b), 36(b) and 48(a) of the Investment Company
Act, Sections 206 and 215 of the Advisers Act, breach of common law fiduciary
duties, and aiding and abetting breaches of common law fiduciary duties.
Plaintiffs seek an unspecified amount of compensatory damages and punitive
damages, rescission of their contracts with AllianceBernstein, including
recovery of all fees paid to AllianceBernstein pursuant to such contracts,
an
accounting of all U.S. Fund-related fees, commissions and soft dollar payments,
and restitution of all unlawfully or discriminatorily obtained fees and
expenses.
On
February 2, 2005, plaintiffs filed a consolidated amended class action
complaint (“Aucoin Consolidated Amended Complaint”) that asserted claims
substantially similar to the Aucoin Complaint and nine additional
subsequently-filed lawsuits. On October 19, 2005, the United States
District Court for the Southern District of New York dismissed each of the
claims set forth in the Aucoin Consolidated Amended Complaint, except for
plaintiffs’ claim under Section 36(b) of the Investment Company Act.
On January 11, 2006, the District Court granted defendants’ motion for
reconsideration and dismissed the remaining Section 36(b) claim. On
May 31, 2006, the District Court denied plaintiffs’ motion for leave to file
their amended complaint. On July 5, 2006, plaintiffs filed a notice of appeal,
which was subsequently withdrawn subject to plaintiffs’ right to reinstate it at
a later date.
We
believe that plaintiffs’ allegations in the Aucoin Consolidated Amended
Complaint are without merit and intend to vigorously defend against these
allegations. At the present time, we are unable to predict the outcome or
estimate a possible loss or range of loss in respect of this matter because
of
the inherent uncertainty regarding the outcome of complex litigation, the fact
that plaintiffs did not specify an amount of damages sought in their complaint,
and the fact that, to date, we have not engaged in settlement
negotiations.
We
are
involved in various other matters, including employee arbitrations, regulatory
inquiries, administrative proceedings, and litigation, some of which allege
material damages. While any proceeding or litigation has the element of
uncertainty, we believe that the outcome of any one of the other lawsuits or
claims that is pending or threatened, or all of them combined, will not have
a
material adverse effect on our results of operations or financial
condition.
Claims
Processing
Contingency
During
the fourth quarter of 2006, we recorded a $56.0 million pre-tax charge as
general and administrative expense for the estimated cost of reimbursing certain
clients for losses arising out of an error we made in processing claims for
class action settlement proceeds on behalf of these clients, which include
some
AllianceBernstein-sponsored mutual funds. The charge and related income tax
benefit decreased 2006 net income and diluted net income per unit by $54.5
million and $0.21, respectively. Our estimate of the cost is based on our review
to date; as we continue our review, our estimate and the ultimate cost we incur
may change. We believe that most of this cost will ultimately be recovered
from
residual settlement proceeds and insurance.
SCB
LLC,
a broker-dealer and a member organization of the New York Stock Exchange
(“NYSE”), is subject to the Uniform Net Capital Rule 15c3-1 of the Exchange
Act. SCB LLC computes its net capital under the alternative method permitted
by
the rule, which requires that minimum net capital, as defined, equal the greater
of $1 million, or two percent of aggregate debit items arising from
customer transactions, as defined. As of December 31, 2006, SCB LLC had net
capital of $154.1 million, which was $112.6 million in excess of the
minimum net capital requirement of $41.5 million. Advances, dividend
payments and other equity withdrawals by SCB LLC are restricted by the
regulations of the SEC, NYSE, and other securities agencies. As of
December 31, 2006, $103.7 million was not available for payment of
cash dividends and advances.
SCBL
is a
member of the London Stock Exchange. As of December 31, 2006, SCBL was
subject to financial resources requirements of $16.0 million imposed by the
Financial Services Authority of the United Kingdom and had aggregate regulatory
financial resources of $30.7 million, an excess of $14.7 million.
AllianceBernstein
Investments serves as distributor and/or underwriter for certain
company-sponsored mutual funds. AllianceBernstein Investments is registered
as a
broker-dealer under the Exchange Act and is subject to the minimum net capital
requirements imposed by the SEC. AllianceBernstein Investments’ net capital as
of December 31, 2006 was $42.4 million, which was $20.8 million in
excess of its required net capital of $21.6 million.
Customer
Activities
In
the
normal course of business, brokerage activities involve the execution,
settlement, and financing of various customer securities trades, which may
expose SCB LLC and SCBL to off-balance sheet risk by requiring SCB LLC and
SCBL
to purchase or sell securities at prevailing market prices in the event the
customer is unable to fulfill its contracted obligations.
SCB
LLC’s
customer securities activities are transacted on either a cash or margin basis.
In margin transactions, SCB LLC extends credit to the customer, subject to
various regulatory and internal margin requirements. These transactions are
collateralized by cash or securities in the customer’s account. In connection
with these activities, SCB LLC may execute and clear customer transactions
involving the sale of securities not yet purchased. SCB LLC seeks to control
the
risks associated with margin transactions by requiring customers to maintain
collateral in compliance with the aforementioned regulatory and internal
guidelines. SCB LLC monitors required margin levels daily and, pursuant to
such
guidelines, requires customers to deposit additional collateral, or reduce
positions, when necessary. A majority of SCB LLC’s customer margin accounts are
managed on a discretionary basis whereby AllianceBernstein maintains control
over the investment activity in the accounts. For these discretionary accounts,
SCB LLC’s margin deficiency exposure is minimized through maintaining a
diversified portfolio of securities in the accounts and by virtue of
AllianceBernstein’s discretionary authority and SCB LLC’s role as
custodian.
SCB
LLC
may enter into forward foreign currency contracts on behalf of accounts for
which SCB LLC acts as custodian. SCB LLC minimizes credit risk associated with
these contracts by monitoring these positions on a daily basis, as well as
by
virtue of AllianceBernstein’s discretionary authority and SCB LLC’s role as
custodian.
In
accordance with industry practice, SCB LLC and SCBL record customer transactions
on a settlement date basis, which is generally three business days after trade
date. SCB LLC and SCBL are exposed to risk of loss on these transactions in
the
event of the customer’s or broker’s inability to meet the terms of their
contracts, in which case SCB LLC and SCBL may have to purchase or sell financial
instruments at prevailing market prices. The risks assumed by SCB LLC and SCBL
in connection with these transactions are not expected to have a material effect
upon AllianceBernstein’s, SCB LLC’s or SCBL’s financial condition or results of
operations.
Other
Counterparties
SCB
LLC
and SCBL are engaged in various brokerage activities in which counterparties
primarily include broker-dealers, banks and other financial institutions. In
the
event counterparties do not fulfill their obligations, SCB LLC and SCBL may
be
exposed to risk. The risk of default depends on the creditworthiness of the
counterparty or issuer of the instrument. It is SCB LLC’s and SCBL’s policy to
review, as necessary, the credit standing of each counterparty.
In
connection with SCB LLC’s security borrowing and lending arrangements, which
constitute the majority of the receivables from and payable to brokers and
dealers, SCB LLC enters into collateralized agreements which may result in
credit exposure in the event the counterparty to a transaction is unable to
fulfill its contractual obligations. Security borrowing arrangements require
SCB
LLC to deposit cash collateral with the lender. With respect to security lending
arrangements, SCB LLC receives collateral in the form of cash in amounts
generally in excess of the market value of the securities loaned. SCB LLC
minimizes credit risk associated with these activities by establishing credit
limits for each broker and monitoring these limits on a daily basis.
Additionally, security borrowing and lending collateral is marked to market
on a
daily basis, and additional collateral is deposited by or returned to SCB LLC
as
necessary.
14.
|
Qualified
Employee Benefit Plans
|
We
maintain a qualified profit sharing plan (the “Profit Sharing Plan”) covering
U.S. employees and certain foreign employees. Employer contributions are
generally limited to the maximum amount deductible for federal income tax
purposes. Aggregate contributions for 2006, 2005, and 2004 were $25.3 million,
$22.0 million, and $21.1 million, respectively.
We
maintain a qualified, noncontributory, defined benefit retirement plan
(“Retirement Plan”) covering current and former employees who were employed by
AllianceBernstein in the United States prior to October 2, 2000. Benefits
are based on years of credited service, average final base salary and primary
Social Security benefits. Our policy is to satisfy our funding obligation for
each year in an amount not less than the minimum required by ERISA and not
greater than the maximum amount we can deduct for federal income tax
purposes.
The
Retirement Plan’s projected benefit obligation, fair value of plan assets,
funded status and amounts recognized in the consolidated statements of financial
condition were as follows:
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
(in thousands)
|
|
Change
in projected benefit obligation:
|
|
|
|
|
|
Projected
benefit obligation at beginning of year
|
|
$
|
83,815
|
|
$
|
81,204
|
|
Service
cost
|
|
|
4,048
|
|
|
4,268
|
|
Interest
cost
|
|
|
4,578
|
|
|
4,274
|
|
Actuarial
gains
|
|
|
(4,916
|
)
|
|
(3,685
|
)
|
Benefits
paid
|
|
|
(2,842
|
)
|
|
(2,246
|
)
|
Projected
benefit obligation at end of year
|
|
|
84,683
|
|
|
83,815
|
|
Change
in plan assets:
|
|
|
|
|
|
|
|
Plan
assets at fair value at beginning of year
|
|
|
47,406
|
|
|
40,665
|
|
Actual
return on plan assets
|
|
|
4,414
|
|
|
5,487
|
|
Employer
contribution
|
|
|
4,337
|
|
|
3,500
|
|
Benefits
paid
|
|
|
(2,842
|
)
|
|
(2,246
|
)
|
Plan
assets at fair value at end of year
|
|
|
53,315
|
|
|
47,406
|
|
Projected
benefit obligation in excess of plan assets
|
|
|
(31,368
|
)
|
|
(36,409
|
)
|
Amounts
not recognized:
|
|
|
|
|
|
|
|
Unrecognized
net loss from past experience different from that assumed and effects
of
changes and assumptions
|
|
|
—
|
|
|
13,728
|
|
Unrecognized
prior service cost
|
|
|
—
|
|
|
307
|
|
Unrecognized
net plan assets as of January 1, 1987 being recognized over 26.3
years
|
|
|
—
|
|
|
(1,048
|
)
|
Accrued
pension liability included in accrued compensation and
benefits
|
|
$
|
(31,368
|
)
|
$
|
(23,422
|
)
|
We
adopted Statement of Financial Accounting Standards No. 158, “Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106, and 132(R)”,
(“SFAS
No. 158”), as of December 31, 2006. This pronouncement requires an employer to
recognize the underfunded status of a defined benefit plan as a liability in
its
statement of financial position and to recognize changes in that funded status
in the year in which the changes occur as a component of other comprehensive
income.
The
effect of adopting SFAS No. 158 on individual line items in the consolidated
statement of financial condition was as follows (in thousands):
|
|
Before
Application
of
SFAS
No. 158
|
|
Adjustments
|
|
After
Application
of
SFAS
No. 158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets (deferred tax asset)
|
|
$
|
146,674
|
|
$
|
456
|
|
$
|
147,130
|
|
Accrued
compensation and benefits
|
|
|
384,634
|
|
|
7,380
|
|
|
392,014
|
|
Accumulated
other comprehensive income (loss)
|
|
|
40,091
|
|
|
(6,924
|
)
|
|
33,167
|
|
The
amounts included in accumulated other comprehensive income (loss) as of December
31, 2006 were as follows (in thousands):
Unrecognized
net loss from experience different from that assumed and effects
of
changes and assumptions
|
|
$
|
(7,430
|
)
|
Unrecognized
prior service cost
|
|
|
(343
|
)
|
Unrecognized
net plan assets as of January 1, 1987 being recognized over 26.3
years
|
|
|
849
|
|
Accumulated
other comprehensive income (loss)
|
|
$
|
(6,924
|
)
|
The
estimated initial plan assets and prior service cost for the Retirement Plan
that will be amortized from accumulated other comprehensive income over the
next
year is $143,000 and $59,000, respectively.
The
accumulated benefit obligation for the plan was $68.4 million and $66.9 million
as of December 31, 2006 and 2005, respectively. The accumulated benefit
obligation differs from the projected benefit obligation in that it includes
no
assumption about future compensation levels. We currently estimate we will
contribute $3.7 million to the plan during 2007. Contribution estimates, which
are subject to change, are based on regulatory requirements, future market
conditions and assumptions used for actuarial computations of the Retirement
Plan’s obligations and assets. Management, at the present time, is unable to
determine the amount, if any, of additional future contributions that may be
required.
Actuarial
computations used to determine benefit obligations as of December 31, 2006
and 2005 (measurement dates) were made utilizing the following weighted-average
assumptions:
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Discount
rate on benefit obligations
|
|
|
5.90
|
%
|
|
5.65
|
%
|
Annual
salary increases
|
|
|
3.50
|
%
|
|
3.35
|
%
|
The
Retirement Plan’s asset allocation percentages consisted of:
|
|
December 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Equity
securities
|
|
|
69
|
%
|
|
80
|
%
|
Debt
securities
|
|
|
22
|
|
|
19
|
|
Real
estate
|
|
|
9
|
|
|
—
|
|
Other
|
|
|
—
|
|
|
1
|
|
|
|
|
100
|
%
|
|
100
|
%
|
The
following benefit payments, which reflect expected future service, are expected
to be paid as follows (in thousands):
2007
|
|
$
|
3,542
|
|
2008
|
|
|
1,932
|
|
2009
|
|
|
2,544
|
|
2010
|
|
|
3,634
|
|
2011
|
|
|
3,505
|
|
2012-2016
|
|
|
26,026
|
|
Net
expense under the Retirement Plan was comprised of:
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
4,048
|
|
$
|
4,268
|
|
$
|
4,925
|
|
Interest
cost on projected benefit obligations
|
|
|
4,578
|
|
|
4,274
|
|
|
4,109
|
|
Expected
return on plan assets
|
|
|
(3,800
|
)
|
|
(3,225
|
)
|
|
(2,853
|
)
|
Amortization
of prior service credit
|
|
|
(59
|
)
|
|
(59
|
)
|
|
(59
|
)
|
Amortization
of transition asset
|
|
|
(143
|
)
|
|
(143
|
)
|
|
(143
|
)
|
Amortization
of loss
|
|
|
280
|
|
|
501
|
|
|
438
|
|
Net
pension charge
|
|
$
|
4,904
|
|
$
|
5,616
|
|
$
|
6,417
|
|
Actuarial
computations used to determine net periodic costs were made utilizing the
following weighted-average assumptions:
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Discount
rate on benefit obligations
|
|
|
5.65
|
%
|
|
5.75
|
%
|
|
6.25
|
%
|
Expected
long-term rate of return on plan assets
|
|
|
8.00
|
%
|
|
8.00
|
%
|
|
8.00
|
%
|
Annual
salary increases
|
|
|
3.50
|
%
|
|
3.35
|
%
|
|
3.40
|
%
|
In
developing the expected long-term rate of return on plan assets of 8.0%,
management considered the historical returns and future expectations for returns
for each asset category, as well as the target asset allocation of the
portfolio. The expected long-term rate of return on assets is based on weighted
average expected returns for each asset class. Management has assumed a target
allocation weighting of 50% to 70% for equity securities, 20% to 40% for debt
securities, and 0% to 10% for real estate investment trusts. Exposure of the
total portfolio to cash equivalents on average should not exceed 5% of the
portfolio’s value on a market value basis. The plan seeks to provide a rate of
return that exceeds applicable benchmarks over rolling five-year periods. The
benchmark for the plan’s large cap domestic equity investment strategy is the
S&P 500 Index; the small cap domestic equity investment strategy is measured
against the Russell 2000 Index; the international equity investment strategy
is
measured against the MSCI EAFE Index; and the fixed income investment strategy
is measured against the Lehman Brothers Aggregate Bond Index.
Variances
between actuarial assumptions and actual experience are amortized over the
estimated average remaining service lives of employees participating in the
Retirement Plan.
15.
|
Deferred
Compensation Plans
|
We
maintain an unfunded, non-qualified deferred compensation plan known as the
Capital Accumulation Plan and also have assumed obligations under contractual
unfunded deferred compensation arrangements covering certain executives
(“Contractual Arrangements”). The Capital Accumulation Plan was frozen on
December 31, 1987 and no additional awards have been made. The Board of
Directors of the General Partner (“Board”) may terminate the Capital
Accumulation Plan at any time without cause, in which case our liability would
be limited to benefits that have vested. Benefits owed to executives under
the
Contractual Arrangements vested on or before December 31, 1987. Payment
of vested benefits under both the Capital Accumulation Plan and the Contractual
Arrangements will generally be made over a ten-year period commencing at
retirement age. The General Partner is obligated to make capital contributions
to AllianceBernstein in amounts equal to benefits paid under the Capital
Accumulation Plan and the Contractual Arrangements. Amounts included in employee
compensation and benefits expense for the Capital Accumulation Plan and the
Contractual Arrangements for the years ended December 31, 2006, 2005, and
2004 were $2.1 million, $2.9 million, and $3.3 million,
respectively.
In
connection with the Bernstein Transaction, we adopted an unfunded, non-qualified
deferred compensation plan, known as the SCB Deferred Compensation Award Plan
(“SCB Plan”), under which we agreed to invest $96 million per annum for
three years to fund notional investments in Holding Units or a company-sponsored
money market fund, to be awarded for the benefit of certain individuals who
were
stockholders or principals of Bernstein or who were hired to replace them.
The
awards vest ratably over three years and are amortized as employee compensation
expense over the vesting period. Awards are payable to participants when fully
vested, but participants may elect to defer receipt of vested awards to future
dates. The amounts charged to employee compensation and benefits expense for
the
years ended December 31, 2006, 2005, and 2004 were $3.6 million, $29.1
million, and $61.3 million, respectively.
We
maintain an unfunded, non-qualified deferred compensation plan known as the
Amended and Restated AllianceBernstein Partners Compensation Plan (the “Partners
Plan”) under which annual awards may be granted to eligible
employees.
|
|
Awards
made in 1995 vested ratably over three years; awards made from 1996
through 1998 generally vested ratably over eight
years.
|
|
|
Until
distributed, liability for the 1995 through 1998 awards increased
or
decreased through December 31, 2005 based on our earnings growth
rate.
|
|
|
Prior
to January 1, 2006, payment of vested 1995 through 1998 benefits
was
generally made in cash over a five-year period commencing at retirement
or
termination of employment although, under certain circumstances,
partial
lump sum payments were made.
|
|
|
Effective
January 1, 2006, participant accounts were converted to notional
investments in Holding Units or a money market fund, or a combination
of
both, at the election of the participant, in lieu of being subject
to the
earnings-based calculation. Each participant elected a distribution
date,
which could be no earlier than January 2007. Holding issued 834,864
Holding Units in January 2006 in connection with this conversion,
with a
market value on that date of approximately $47.2
million.
|
|
|
Awards
made for 1999 and 2000 are notionally invested in Holding
Units.
|
|
|
A
subsidiary of AllianceBernstein purchases Holding Units to fund the
related benefits.
|
|
|
The
vesting periods for 1999 and 2000 awards range from eight years to
immediate depending on the age of the
participant.
|
|
|
For
2001, participants were required to allocate at least 50% of their
awards
to notional investments in Holding Units and could allocate the remainder
to notional investments in certain of our investment
services.
|
|
|
For
2002 awards, participants may elect to allocate their awards in a
combination of notional investments in Holding Units and notional
investments in certain of our investment
services.
|
|
|
Beginning
with 2003 awards, participants may elect to allocate their awards
in a
combination of notional investments in Holding Units (up to 50%)
and
notional investments in certain of our investment
services.
|
|
|
Beginning
with 2006 awards, selected senior officers may elect to allocate
up to a
specified portion of their awards to investments in options to buy
Holding
Units (“Special Program”); the firm matches this allocation on a
two-for-one basis (for additional information about the Special Program,
see
Note 16).
|
Beginning
with 2001 awards, vesting periods range from four years to immediate depending
on the age of the participant. Upon vesting, awards are distributed to
participants unless a voluntary election to defer receipt has been made.
Quarterly cash distributions on unvested Holding Units for which a deferral
election has not been made are paid currently to participants. Quarterly cash
distributions on vested and unvested Holding Units for which a deferral election
has been made and income earned on notional investments in company-sponsored
mutual funds are reinvested and distributed as elected by
participants.
The
Partners Plan may be terminated at any time without cause, in which case our
liability would be limited to vested benefits. We made awards in 2006, 2005,
and
2004 aggregating $238.5 million, $202.0 million, and $181.8 million,
respectively. In January 2007, $9.8 million of the 2006 award was allocated
to
options to buy Holding Units (see
Note 16).
The
amounts charged to employee compensation and benefits expense for the years
ended December 31, 2006, 2005, and 2004 were $191.9 million, $133.1
million, and $75.8 million, respectively.
During
2003, we established the AllianceBernstein Commission Substitution Plan
(“Commission Substitution”), an unfunded, non-qualified incentive plan.
Employees whose principal duties are to sell or market the products or services
of AllianceBernstein and whose compensation is entirely or mostly
commission-based are eligible for an award under this plan. Participants
designate the percentage of their awards to be allocated to notional investments
in Holding Units or notional investments in certain of our investment services.
Awards vest ratably over a three-year period and are amortized as employee
compensation expense. We made awards totaling $40.1 million in 2006, $31.8
million in 2005, and $29.6 million in 2004. The amounts charged to employee
compensation and benefits expense for the years ended December 31, 2006, 2005,
and 2004 were $27.0 million, $15.8 million, and $6.3 million,
respectively.
Effective
August 1, 2005, we established the AllianceBernstein Financial Advisor Wealth
Accumulation Plan (“Wealth Accumulation Plan”), an unfunded, non-qualified
deferred compensation plan. The Wealth Accumulation Plan was established in
order to create a compensation program to attract and retain eligible employees
expected to make significant contributions to the future growth and success
of
Bernstein Global Wealth Management, a unit of AllianceBernstein. Participants
designate the percentage of their awards to be notionally invested in Holding
Units or certain of our investment services. No more than 50% of the award
may
be notionally invested in Holding Units. All awards vest annually on a
pro
rata
basis
over the term of the award. We made awards totaling $14.5 million and $14.1
million in 2006 and 2005, respectively. The amount charged to employee
compensation and benefits expense for the years ended December 31, 2006 and
2005
were $4.2 million and $0.5 million.
In
accordance with the terms of the employment agreement between Mr. Sanders,
Chairman and CEO, and AllianceBernstein dated October 26, 2006 (and the terms
of
Mr. Sanders’s prior employment agreement), Mr. Sanders is entitled to receive a
deferred compensation award of not less than 1% of AllianceBernstein’s
consolidated operating income before incentive compensation for each calendar
year during the employment term, beginning with 2004. Mr. Sanders must
notionally invest his awards among certain of our investment services. The
2004
award of $12.0 million vests 40% in December 2005, 40% in December 2006, and
20%
in June 2007. The 2005 award of $14.8 million vests 67% in December 2006 and
33%
in June 2007. The 2006 award of $19.0 million vests 65% in December 2007 and
35%
in December 2008. The amounts charged to employee compensation and benefits
expense for the years ended December 31, 2006 and 2005 were $15.0 million and
$4.8 million, respectively.
16.
|
Compensatory
Unit Award and Option
Plans
|
In
1988,
we established an employee unit option plan (the “Unit Option Plan”), under
which options to buy Holding Units were granted to certain key employees.
Options were granted for terms of up to 10 years and each option has an exercise
price of not less than the fair market value of Holding Units on the date of
grant. Options are exercisable at a rate of 20% of the Holding Units subject
to
such options on each of the first five anniversary dates of the date of grant.
No options have been granted under the Unit Option Plan since it expired in
1999.
In
1993,
we established the 1993 Unit Option Plan (“1993 Plan”), under which options to
buy Holding Units were granted to key employees and independent directors of
the
General Partner for terms of up to 10 years. Each option has an exercise price
of not less than the fair market value of Holding Units on the date of grant.
Options are exercisable at a rate of 20% of the Holding Units subject to such
options on each of the first five anniversary dates of the date of grant. No
options or other awards have
been
granted under the 1993 Plan since it expired in 2003.
In
1997,
we established the 1997 Long Term Incentive Plan (“1997 Plan”), under which
options to buy Holding Units, restricted Holding Units and phantom restricted
Holding Units, performance awards, and other Holding Unit-based awards may
be
granted to key employees and independent directors of the General Partner for
terms established at the time of grant (generally 10 years). Options granted
to
employees are generally exercisable at a rate of 20% of the Holding Units
subject to such options on each of the first five anniversary dates of the
date
of grant; options granted to independent directors are generally exercisable
at
a rate of 33.3% of the Holding Units subject to such options on each of the
first three anniversary dates of the date of grant. The aggregate number of
Holding Units that can be the subject of options granted or that can be awarded
under the 1997 Plan may not exceed 41,000,000 Holding Units. As of December
31,
2006, options to buy 10,796,116 Holding Units, net of forfeitures, had been
granted and 1,035,237 Holding Units, net of forfeitures, were subject to other
unit awards made under the 1997 Plan (as
described below).
Holding Unit-based awards (including options) in respect of 29,168,647 Holding
Units were available for grant as of December 31, 2006.
During
2006, 2005, and 2004, options to buy 9,712, 17,604, and 40,000 Holding Units,
respectively, were granted to independent directors of the General Partner
under
the 1997 Plan; no options were granted to employees. The weighted average fair
value of options to buy Holding Units granted during 2006, 2005, and 2004 was
$12.35, $7.04, and $8.00, respectively, on the date of grant, determined using
the Black-Scholes option valuation model with the following
assumptions:
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
4.9
|
%
|
|
3.7
|
%
|
|
4.0
|
%
|
Expected
cash distribution yield
|
|
|
6.0
|
%
|
|
6.2
|
%
|
|
3.5
|
%
|
Historical
volatility factor
|
|
|
31.0
|
%
|
|
31.0
|
%
|
|
32.0
|
%
|
Expected
term
|
|
|
6.5
years
|
|
|
3
years
|
|
|
5
years
|
|
The
following table summarizes the activity in options under our various option
plans:
|
|
Holding
Units
|
|
Weighted Average
Exercise Price
Per Holding Unit
|
|
|
|
|
|
|
|
Outstanding
as of December 31, 2003
|
|
|
13,793,100
|
|
$
|
35.55
|
|
Granted
|
|
|
40,000
|
|
|
33.00
|
|
Exercised
|
|
|
(2,468,380
|
)
|
|
18.43
|
|
Forfeited
|
|
|
(1,795,300
|
)
|
|
46.96
|
|
Outstanding
as of December 31, 2004
|
|
|
9,569,420
|
|
|
37.82
|
|
Granted
|
|
|
17,604
|
|
|
45.45
|
|
Exercised
|
|
|
(1,712,520
|
)
|
|
24.13
|
|
Forfeited
|
|
|
(424,300
|
)
|
|
47.10
|
|
Outstanding
as of December 31, 2005
|
|
|
7,450,204
|
|
|
40.45
|
|
Granted
|
|
|
9,712
|
|
|
65.02
|
|
Exercised
|
|
|
(2,567,017
|
)
|
|
38.40
|
|
Forfeited
|
|
|
(73,800
|
)
|
|
38.19
|
|
Outstanding
as of December 31, 2006
|
|
|
4,819,099
|
|
|
41.62
|
|
|
|
|
|
|
|
|
|
Exercisable
as of December 31, 2004
|
|
|
7,161,820
|
|
|
|
|
Exercisable
as of December 31, 2005
|
|
|
6,366,700
|
|
|
|
|
Exercisable
as of December 31, 2006
|
|
|
4,437,351
|
|
|
|
|
The
total
intrinsic value of options exercised during 2006, 2005, and 2004 was $79.0
million, $40.6 million, and $46.0 million, respectively.
The
following table summarizes information concerning outstanding and exercisable
options as of December 31, 2006:
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
Range of Exercise Prices:
|
|
Number
Outstanding
as of
12/31/06
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
as of
12/31/06
|
|
Weighted
Average
Exercise
Price
|
|
$
|
18.47
|
- |
$
|
25.63
|
|
|
|
202,000
|
|
|
1.00
|
|
$
|
18.75
|
|
|
202,000
|
|
$
|
18.75
|
|
|
25.65
|
- |
|
30.25
|
|
|
|
711,550
|
|
|
2.58
|
|
|
28.74
|
|
|
709,550
|
|
|
28.74
|
|
|
32.52
|
- |
|
48.50
|
|
|
|
1,875,537
|
|
|
5.27
|
|
|
37.86
|
|
|
1,506,501
|
|
|
38.87
|
|
|
50.15
|
- |
|
50.56
|
|
|
|
1,116,800
|
|
|
4.92
|
|
|
50.25
|
|
|
1,115,800
|
|
|
50.25
|
|
|
51.10
|
- |
|
65.02
|
|
|
|
913,212
|
|
|
4.02
|
|
|
53.90
|
|
|
903,500
|
|
|
53.78
|
|
$
|
18.47
|
- |
$
|
65.02
|
|
|
|
4,819,099
|
|
|
4.37
|
|
|
41.62
|
|
|
4,437,351
|
|
|
42.24
|
|
The
total
intrinsic value of options outstanding and exercisable as of December 31, 2006
was $186.9 million and $169.3 million, respectively.
The
following table summarizes activity of unvested options during the year ended
December 31, 2006:
|
|
Holding
Units
|
|
Weighted Average
Exercise Price
Per Holding Unit
|
|
|
|
|
|
|
|
Unvested
as of January 1, 2006
|
|
|
1,083,504
|
|
$
|
38.47
|
|
Granted
|
|
|
9,712
|
|
|
65.02
|
|
Vested
|
|
|
(637,668
|
)
|
|
41.26
|
|
Forfeited
|
|
|
(73,800
|
)
|
|
38.19
|
|
Unvested
as of December 31, 2006
|
|
|
381,748
|
|
|
34.53
|
|
The
total
fair value of options vested during 2006 was $26.3 million.
Under
the
fair value method, compensation expense is measured at the grant date based
on
the estimated fair value of the options awarded (determined using the
Black-Scholes option valuation model) and is recognized over the vesting period.
We recorded compensation expense relating to the option plans of $2.7 million,
$2.2 million, and $2.4 million, respectively, for the years ended December
31,
2006, 2005, and 2004. As of December 31, 2006, there was $1.7 million of
compensation cost related to unvested share-based compensation arrangements
granted under the option plans for unvested awards not yet recognized. That
cost
is expected to be recognized over a weighted average period of one
year.
On
January 26, 2007, the Compensation Committee of the Board approved the Special
Option Program, under which selected senior officers voluntarily allocate a
specified portion of their Partners Plan award to options to buy Holding Units
and the company matches this allocation on a two-for-one basis. Also on January
26, 2007, the Compensation Committee granted two separate awards of options
to
buy Holding Units to 67 participants. The exercise price for both awards is
$90.65, the closing price of Holding Units on the grant date. The first grant,
with a fair value of $17.69 per option, awarded options to buy 555,985 Holding
Units, vesting in equal increments on each of the first five anniversaries
of
the grant date and expiring in 10 years. The second grant, with a fair value
of
$17.67 per option, awarded options to buy 1,113,220 Holding Units, vesting
in
equal annual increments on each of the sixth through tenth anniversaries of
the
grant date and expiring in 11 years.
Other
Unit Awards
Restricted
Units
In
2006
and 2005, restricted Holding Units (“Restricted Units”) were awarded to the
independent directors of the General Partner. The Restricted Units give the
directors, in most instances, all the rights of other Holding Unitholders
subject to such restrictions on transfer as the Board may impose. We awarded
1,848 and 2,644 Restricted Units in 2006 and 2005, respectively, with grant
date
market values of $65.02 and $45.45 per Holding Unit, respectively. All of the
Restricted Units vest on the third anniversary of grant date or immediately
upon
a director’s resignation. We fully expensed these awards on the grant
date. As of December 31, 2006, 3,170 Restricted Units, net of
distributions made upon retirement of two directors, were outstanding. We
recorded compensation expense of $164,000 and $48,000 in 2006 and 2005,
respectively, related to Restricted Units.
Century
Club Plan
In
1993,
we established the Century Club Plan, under which employees of AllianceBernstein
whose primary responsibilities are to assist in the distribution of
company-sponsored mutual funds and who meet certain sales targets, are eligible
to receive an award of Holding Units. Awards vest ratably over three years
and
are amortized as employee compensation expense. In 2006, awards totaling 36,020
Holding Units with a market value on the date of award of $63.82 per Holding
Unit were granted, and 2,605 previously awarded Holding Units were forfeited.
In
2005, awards totaling 33,800 Holding Units with a market value on the date
of
award of $46.60 per Holding Unit were granted, and 4,493 previously awarded
Holding Units were forfeited.
The
following table summarizes the activity of unvested Century Club units during
2006:
|
|
Holding
Units
|
|
|
|
|
|
Unvested as
of January 1, 2006
|
|
|
53,250
|
|
Granted
|
|
|
36,020
|
|
Vested
|
|
|
(25,973
|
)
|
Forfeited
|
|
|
(2,605
|
)
|
Unvested
as of December 31, 2006
|
|
|
60,692
|
|
We
recorded compensation expense relating to the Century Club Plan of $1.5 million,
$1.1 million, and $1.0 million, respectively, for the years ended December
31,
2006, 2005, and 2004. As of December 31, 2006, there was $2.1 million of
compensation cost related to unvested share-based compensation arrangements
granted under the Century Club Plan not yet recognized. That cost is expected
to
be recognized over a weighted average period of 1.6 years.
Awards
under the Century Club Plan and those of Restricted Units reduce the number
of
options to acquire Holding Units available for grant under the 1997 Plan and
forfeitures under the Century Club Plan and those of Restricted Units increase
them.
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 a 4.0% New York City unincorporated business
tax
(“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 in the foreign jurisdictions where they are located.
Income
tax expense is comprised of:
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Partnership
UBT
|
|
$
|
23,696
|
|
$
|
16,365
|
|
$
|
14,240
|
|
Corporate
subsidiaries:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
4,901
|
|
|
7,100
|
|
|
3,687
|
|
State
and local
|
|
|
374
|
|
|
1,236
|
|
|
479
|
|
Foreign
|
|
|
41,061
|
|
|
35,676
|
|
|
18,572
|
|
Current
tax expense
|
|
|
70,032
|
|
|
60,377
|
|
|
36,978
|
|
Deferred
tax expense
|
|
|
5,013
|
|
|
4,194
|
|
|
2,954
|
|
Income
tax expense
|
|
$
|
75,045
|
|
$
|
64,571
|
|
$
|
39,932
|
|
The
principal reasons for the difference between the effective tax rates and the
UBT
statutory tax rate of 4.0% are as follows:
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UBT
statutory rate
|
|
$
|
47,346
|
|
|
4.0
|
%
|
$
|
37,315
|
|
|
4.0
|
%
|
$
|
29,803
|
|
|
4.0
|
%
|
Corporate
subsidiaries’ federal, state, local, and foreign income
taxes
|
|
|
40,708
|
|
|
3.4
|
|
|
37,114
|
|
|
3.9
|
|
|
20,648
|
|
|
2.8
|
|
Other
non-deductible and permanent items, primarily income not taxable
resulting
from use of UBT business apportionment factors
|
|
|
(13,009
|
)
|
|
(1.1
|
)
|
|
(9,858
|
)
|
|
(1.0
|
)
|
|
(10,519
|
)
|
|
(1.4
|
)
|
Income
tax expense and effective tax rate
|
|
$
|
75,045
|
|
|
6.3
|
|
$
|
64,571
|
|
|
6.9
|
|
$
|
39,932
|
|
|
5.4
|
|
Under
Statement of Financial Accounting Standards No. 109
(“SFAS No. 109”), “Accounting
for Income Taxes”,
deferred
income taxes reflect the net tax effect of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and
the amounts used for income tax purposes.
The
tax
effect of significant items comprising the net deferred tax (liability) asset
is
as follows:
|
|
December 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
(in thousands)
|
|
Deferred
tax asset:
|
|
|
|
|
|
|
|
Differences
between book and tax basis:
|
|
|
|
|
|
|
|
Deferred
compensation plans
|
|
$
|
9,768
|
|
$
|
9,850
|
|
Intangible
assets
|
|
|
512
|
|
|
631
|
|
Charge
for mutual fund matters, legal proceedings, and claims processing
contingency
|
|
|
5,612
|
|
|
4,900
|
|
Other,
primarily revenues taxed upon receipt and accrued
expenses deductible when paid
|
|
|
2,452
|
|
|
827
|
|
|
|
|
18,344
|
|
|
16,208
|
|
Valuation
allowance
|
|
|
(1,761
|
)
|
|
(2,113
|
)
|
Deferred
tax asset, net of valuation allowance
|
|
|
16,583
|
|
|
14,095
|
|
Deferred
tax liability:
|
|
|
|
|
|
|
|
Differences
between book and tax basis:
|
|
|
|
|
|
|
|
Furniture,
equipment and leasehold improvements
|
|
|
848
|
|
|
142
|
|
Investment
partnerships
|
|
|
3,136
|
|
|
573
|
|
Intangible
assets
|
|
|
12,427
|
|
|
10,288
|
|
Translation
adjustment
|
|
|
2,106
|
|
|
—
|
|
Other,
primarily undistributed earnings of certain foreign
subsidiaries
|
|
|
2,686
|
|
|
1,920
|
|
|
|
|
21,203
|
|
|
12,923
|
|
Net
deferred tax (liability) asset
|
|
$
|
(4,620
|
)
|
$
|
1,172
|
|
The
valuation allowance primarily relates to uncertainties on the deductibility
of
certain compensation items. The deferred tax asset, net of valuation allowance,
is included in other assets. Management has determined that realization of
the
deferred tax asset is more likely than not based on anticipated future taxable
income.
The
company provides income taxes on the undistributed earnings of non-U.S.
corporate subsidiaries except to the extent that such earnings are permanently
invested outside the United States. As of December 31, 2006, $159.0 million
of accumulated undistributed earnings of non-U.S. corporate subsidiaries were
permanently invested. At the existing federal income tax rate, additional taxes
of approximately $4.7 million would need to be provided if such earnings were
remitted.
On
October 22, 2004, the American Jobs Creation Act of 2004 (“Act”) was signed
into law. The Act contained a one-time foreign dividend repatriation provision,
which provided for a special deduction with respect to certain qualifying
dividends from foreign subsidiaries until December 31, 2005. In December
2005, our foreign subsidiaries distributed $42.7 million of previously
unremitted earnings which qualified for the special deduction under the Act.
The
company incurred income taxes of less than $0.5 million as a result of these
distributions.
In
order
to preserve AllianceBernstein’s status as a private partnership for federal
income tax purposes, AllianceBernstein Units must not be considered publicly
traded. The AllianceBernstein Partnership Agreement provides that all transfers
of AllianceBernstein Units must be approved by AXA Equitable and the General
Partner; AXA Equitable and the General Partner approve only those transfers
permitted pursuant to one or more of the safe harbors contained in relevant
treasury regulations. If such units were considered readily tradable,
AllianceBernstein’s net income would be subject to federal and state corporate
income tax. Furthermore, should AllianceBernstein enter into a substantial
new
line of business, Holding, by virtue of its ownership of AllianceBernstein,
would lose its status as a grandfathered publicly traded partnership and would
become subject to corporate income tax which would reduce materially Holding’s
net income and its quarterly distributions to Holding Unitholders.
Effective
January 1, 2007, we will adopt the provisions in FIN
48.
See
Note 22.
18.
|
Business
Segment Information
|
We
adopted Statement of Financial Accounting Standards No. 131
(“SFAS No. 131”), “Disclosures
about Segments of an Enterprise and Related Information”,
in
1999. SFAS No. 131 establishes standards for reporting information
about operating segments in annual and interim financial statements. It also
establishes standards for disclosures about products and services, geographic
areas and major customers. Generally, financial information is required to
be
reported consistent with the basis used by management to allocate resources
and
assess performance.
Management
has assessed the requirements of SFAS No. 131 and determined that,
because we utilize a consolidated approach to assess performance and allocate
resources, we have only one operating segment. Enterprise-wide disclosures
as
of, and for the years ended, December 31, 2006, 2005, and 2004 were as
follows:
Services
Net
revenues derived from our various research, investment management and related
services were as follows:
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
Institutional
investments
|
|
$
|
1,222
|
|
$
|
895
|
|
$
|
728
|
|
Retail
|
|
|
1,304
|
|
|
1,189
|
|
|
1,289
|
|
Private
client
|
|
|
883
|
|
|
673
|
|
|
543
|
|
Institutional
research services
|
|
|
375
|
|
|
353
|
|
|
420
|
|
Other
|
|
|
354
|
|
|
199
|
|
|
108
|
|
Total
revenues
|
|
|
4,138
|
|
|
3,309
|
|
|
3,088
|
|
Less:
Interest expense
|
|
|
188
|
|
|
96
|
|
|
33
|
|
Net
revenues
|
|
$
|
3,950
|
|
$
|
3,213
|
|
$
|
3,055
|
|
Geographic
Information
Net
revenues and long-lived assets, related to our U.S. and international
operations, as of and for the years ended December 31, were:
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
(in millions)
|
|
Net
revenues:
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
2,733
|
|
$
|
2,376
|
|
$
|
2,398
|
|
International
|
|
|
1,217
|
|
|
837
|
|
|
657
|
|
Total
|
|
$
|
3,950
|
|
$
|
3,213
|
|
$
|
3,055
|
|
Long-lived
assets:
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
3,619
|
|
$
|
3,597
|
|
$
|
3,649
|
|
International
|
|
|
42
|
|
|
18
|
|
|
24
|
|
Total
|
|
$
|
3,661
|
|
$
|
3,615
|
|
$
|
3,673
|
|
Major
Customers
Our
mutual funds are distributed to individual investors through broker-dealers,
insurance sales representatives, banks, registered investment advisers,
financial planners and other financial intermediaries. AXA Advisors, LLC (“AXA
Advisors”), a wholly-owned subsidiary of AXA Financial that uses members of the
AXA Equitable insurance agency sales force as its registered representatives,
has entered into a selected dealer agreement with AllianceBernstein Investments
and has been responsible for 2%, 3%, and 4% of our open-end mutual fund sales
in
2006, 2005, and 2004, respectively. Subsidiaries of Merrill Lynch &
Co., Inc. (“Merrill Lynch”) were responsible for approximately 6%, 5%, and
6% of our open-end mutual fund sales in 2006, 2005, and 2004, respectively.
Citigroup, Inc. and its subsidiaries (“Citigroup”), was responsible for
approximately 5%, 5%, and 7% of our open-end mutual fund sales in 2006, 2005,
and 2004, respectively. AXA Advisors, Merrill Lynch and Citigroup are under
no
obligation to sell a specific amount of shares of our mutual funds, and each
also sells shares of mutual funds that it sponsors and that are sponsored by
unaffiliated organizations (in the case of Merrill Lynch and
Citigroup).
AXA
and
the general and separate accounts of AXA Equitable (including investments by
the
separate accounts of AXA Equitable in the funding vehicle EQ Advisors Trust)
accounted for approximately 5% of total revenues for each of the years ended
December 31, 2006, 2005, and 2004. No single institutional client other
than AXA and its subsidiaries accounted for more than 1% of total revenues
for
the years ended December 31, 2006, 2005, and 2004,
respectively.
19.
|
Related
Party Transactions
|
Mutual
Funds
Investment
management, distribution, shareholder and administrative, and brokerage services
are provided to individual investors by means of retail mutual funds sponsored
by our company, our subsidiaries, and our affiliated joint venture companies.
Substantially all of these services are provided under contracts that set forth
the services to be provided and the fees to be charged. The contracts are
subject to annual review and approval by each of the mutual funds’ boards of
directors or trustees and, in certain circumstances, by the mutual funds’
shareholders. Revenues for services provided or related to the mutual funds
are
as follows:
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Investment
advisory and services fees
|
|
$
|
840,453
|
|
$
|
728,492
|
|
$
|
744,663
|
|
Distribution
revenues
|
|
|
421,045
|
|
|
397,800
|
|
|
447,283
|
|
Shareholder
servicing fees
|
|
|
97,236
|
|
|
99,358
|
|
|
115,979
|
|
Other
revenues
|
|
|
6,917
|
|
|
8,014
|
|
|
8,770
|
|
Institutional
research services
|
|
|
1,414
|
|
|
3,496
|
|
|
5,244
|
|
AXA
and its Subsidiaries
We
provide investment management and certain administration services to AXA and
its
subsidiaries. In addition, AXA and its subsidiaries distribute our mutual funds,
for which they receive commissions and distribution payments. Sales of our
mutual funds through AXA and its subsidiaries, excluding cash management
products, aggregated approximately $0.5 billion, $0.5 billion, $0.4 billion,
for
the years ended December 31, 2006, 2005, and 2004, respectively. Also, we
are covered by various insurance policies maintained by AXA subsidiaries and
we
pay fees for other services and technology provided by AXA and its subsidiaries
that are included in General and Administrative expenses. Aggregate amounts
included in the consolidated financial statements for transactions with AXA
and
its subsidiaries are as follows:
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
Investment
advisory and services fees
|
|
$
|
184,122
|
|
$
|
168,124
|
|
$
|
156,352
|
|
Institutional
research services
|
|
|
520
|
|
|
2,051
|
|
|
4,163
|
|
Other
revenues
|
|
|
736
|
|
|
734
|
|
|
3,231
|
|
|
|
$
|
185,378
|
|
$
|
170,909
|
|
$
|
163,746
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
Commissions
and distribution payments to financial intermediaries
|
|
$
|
5,708
|
|
$
|
5,500
|
|
$
|
6,325
|
|
Other
promotion and servicing
|
|
|
772
|
|
|
858
|
|
|
843
|
|
General
and administrative
|
|
|
9,533
|
|
|
6,665
|
|
|
8,916
|
|
|
|
$
|
16,013
|
|
$
|
13,023
|
|
$
|
16,084
|
|
Balance
Sheet:
|
|
|
|
|
|
|
|
|
|
|
Institutional
investment advisory and services fees receivable
|
|
$
|
7,330
|
|
$
|
7,182
|
|
$
|
6,532
|
|
Other
due (to) from AXA and its subsidiaries
|
|
|
(965
|
)
|
|
1,362
|
|
|
(1,405
|
)
|
|
|
$
|
6,365
|
|
$
|
8,544
|
|
$
|
5,127
|
|
During
2001, AllianceBernstein and AXA Asia Pacific Holdings Limited (“AXA Asia
Pacific”) established two investment management companies and we include their
financial results in our consolidated results of operations. Investment advisory
and services fees earned by these companies were approximately $61.1 million,
$44.6 million, and $33.3 million for the years ended December 31, 2006, 2005,
and 2004, respectively, of which approximately $21.3 million, $19.9 million,
and
$17.6 million, respectively, were from AXA affiliates and are included in
the table above. Minority interest recorded for these companies was $8.8
million, $5.9 million, and $3.7 million, for the years ended December 31, 2006,
2005, and 2004, respectively.
During
the fourth quarter of 2006, AllianceBernstein Venture Fund I, L.P. was
established as an investment vehicle to achieve long-term capital appreciation
through equity and equity-related investments, acquired in private transactions,
in early stage growth companies. One of our subsidiaries is the general partner
of the fund and, as a result, the fund is included in our consolidated financial
statements, with approximately $34 million of investments on the consolidated
statement of financial condition as of December 31, 2006. AXA Equitable holds
a
10% limited partnership interest in this fund.
Other
Related Parties
The
consolidated statements of financial condition include a net receivable from
Holding and a net receivable or payable to our unconsolidated joint ventures
as
a result of cash transactions for fees and expense reimbursements. The net
balances included in the consolidated statements of financial condition as
of
December 31, 2006, 2005, and 2004 are as follows:
|
|
December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Due
from Holding, net
|
|
$
|
7,149
|
|
$
|
7,197
|
|
$
|
7,664
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
from (to) unconsolidated joint ventures, net
|
|
$
|
376
|
|
$
|
(2,678
|
)
|
$
|
(1,287
|
)
|
On
May 2,
2006, we purchased the 50% interest in our Hong Kong joint venture (including
its wholly-owned Taiwanese subsidiary) owned by our joint venture partner for
$16.1 million in cash. The effect of this acquisition was not material to our
consolidated financial condition, results of operations or cash
flows.
Cash
Management Services
In
June 2005, AllianceBernstein and Federated Investors, Inc. (“Federated”)
completed a transaction pursuant to which Federated acquired our cash management
services. In the transaction, $19.3 billion in assets under management from
22
of our third-party distributed money market funds were transitioned into
Federated money market funds.
The
total
sales price (much of which is contingent) is estimated to be approximately
$95.0
million, which is composed of three parts: (1) an initial cash payment of
$25.0 million which was received in the second quarter of 2005, (2) annual
contingent purchase price payments payable over a five-year period ending 2010,
which we estimate will total $60.0 million, and (3) a final contingent
$10.0 million payment, which is based on comparing revenues generated by
applicable assets during the fifth year following the closing of the transaction
to the revenues generated by those assets during a specified period prior to
the
closing of the transaction.
The
annual contingent purchase price payments are calculated as a percentage of
revenues, less certain expenses, directly attributed to these assets and certain
other assets of our former cash management clients transferred to Federated.
Income is accrued as earned. The contingent payments received from Federated
in
the five years following the closing of the transaction are expected to largely
offset the loss of operating income that would have been earned for managing
the
cash in money market fund customer accounts. As a result, this transaction
is
not expected to have a material impact on future results of operations, cash
flow or liquidity during that period.
During
2005, we recorded a $19.4 million pre-tax gain as non-operating income, net
of
transaction expenses and a “clawback” provision that would have required us to
pay Federated up to $7.5 million if average daily transferred assets for the
six-month period ended June 29, 2006 had fallen below a certain percentage
of initial assets transferred at closing. We were not required to make a payment
under the clawback provision and, accordingly, we recognized a gain of $7.5
million during the second quarter of 2006. In addition, we earned contingent
purchase price payments of $12.8 million during 2006.
Indian
Mutual Funds
In
the
third quarter of 2005, Alliance Capital Asset Management (India) Pvt. Ltd.,
75%
owned by AllianceBernstein, whose principal activity was to sponsor and serve
as
the investment advisor to AllianceBernstein mutual funds in India,
transferred those mutual funds and its rights to manage those mutual funds
to
Birla Sun Life. During 2005, we recorded a pre-tax gain of $8.1 million from
this transaction, net of related expenses, as non-operating income.
South
African Joint Venture
AllianceBernstein
completed a transaction on December 31, 2005 pursuant to which Investec Asset
Management (Proprietary) Ltd. acquired AllianceBernstein’s interest in Alliance
Capital Management (Proprietary) Ltd., the firm’s South African domestic
investment management subsidiary, including Alliance Capital Management
(Proprietary) Namibia Ltd, its wholly-owned Namibian subsidiary.
In
the
fourth quarter of 2005, we recorded a pre-tax gain of $7.0 million as
non-operating income consisting of $8.9 million of cash proceeds, offset by
$0.3
million of transaction charges and $1.6 million of payments to former minority
shareholders.
22.
|
Accounting
Pronouncements
|
During
2006, we adopted SFAS No. 123-R, “Accounting for Stock-Based
Compensation”, and SFAS No. 158, “Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans”. See Notes 2 and
16 for a discussion of the adoption of SFAS 123-R and Note 14 for
a discussion of the adoption of SFAS 158.
In
June
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48 (“FIN No. 48”), “Accounting
for Uncertainty in Income Taxes”,
an
interpretation of SFAS No. 109. FIN No. 48 requires that the effects of a tax
position be recognized in the financial statements only if, as of the reporting
date, it is “more likely than not” to be sustained based solely on its technical
merits. In making this assessment, a company must assume that the taxing
authority will examine the tax position and have full knowledge of all relevant
information. FIN No. 48 became effective on January 1, 2007. We currently
estimate that the implementation of FIN No. 48 will not have a material impact
on our results of operations, liability for income taxes, or partners’ capital
in 2007.
23.
|
Quarterly
Financial Data (Unaudited)
|
|
|
Quarters Ended 2006
|
|
|
|
December 31
|
|
September 30
|
|
June 30
|
|
March 31
|
|
|
|
(in thousands, except per unit amounts)
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$
|
1,186,698
|
|
$
|
934,711
|
|
$
|
933,330
|
|
$
|
895,668
|
|
Net
income
|
|
$
|
366,952
|
|
$
|
252,974
|
|
$
|
261,102
|
|
$
|
227,573
|
|
Basic
net income per unit(1)
|
|
$
|
1.40
|
|
$
|
0.97
|
|
$
|
1.00
|
|
$
|
0.88
|
|
Diluted
net income per unit(1)
|
|
$
|
1.39
|
|
$
|
0.96
|
|
$
|
0.99
|
|
$
|
0.87
|
|
Cash
distributions per unit(2)
|
|
$
|
1.60
|
|
$
|
0.96
|
|
$
|
0.99
|
|
$
|
0.87
|
|
|
|
Quarters Ended 2005
|
|
|
|
December 31
|
|
September 30
|
|
June 30
|
|
March 31
|
|
|
|
(in thousands, except per unit amounts)
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$
|
910,586
|
|
$
|
795,332
|
|
$
|
756,258
|
|
$
|
750,549
|
|
Net
income
|
|
$
|
289,886
|
|
$
|
211,928
|
|
$
|
197,997
|
|
$
|
168,507
|
|
Basic
net income per unit(1)
|
|
$
|
1.12
|
|
$
|
0.82
|
|
$
|
0.77
|
|
$
|
0.66
|
|
Diluted
net income per unit(1)
|
|
$
|
1.12
|
|
$
|
0.82
|
|
$
|
0.76
|
|
$
|
0.65
|
|
Cash
distributions per unit(2)
|
|
$
|
1.12
|
|
$
|
0.82
|
|
$
|
0.76
|
|
$
|
0.63
|
|
____________
(1) |
Basic
and diluted net income per unit are computed independently for each
of the
periods presented. Accordingly,
the sum of the quarterly net income per unit amounts may not agree
to the
total for the year.
|
(2)
|
Declared
and paid during the following
quarter.
|
Report
of Independent Registered Public Accounting Firm
To the
General Partner and Unitholders
AllianceBernstein
L.P.:
We
have
completed an integrated audit of
AllianceBernstein L.P.’s 2006 consolidated financial statements and of its
internal control over financial reporting as of December 31, 2006 in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Our opinions, based on our audit, are presented
below.
Consolidated
financial statements
In
our
opinion, the accompanying consolidated statement of financial condition and
the
related consolidated statements of income, changes in partners' capital and
comprehensive income and cash flows present fairly, in all material respects,
the financial position of AllianceBernstein L.P. (“AllianceBernstein”) and its
subsidiaries at December 31, 2006 and for the year then ended in conformity
with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of AllianceBernstein’s management.
Our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit of financial statements includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our
opinion.
Internal
control over financial reporting
Also,
in
our opinion, management’s assessment, included in the accompanying Management's
Report on Internal Control over Financial Reporting,
that
AllianceBernstein maintained effective internal control over financial reporting
as of December 31, 2006, based on criteria established in Internal
Control - Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
is fairly stated, in all material respects, based on those criteria.
Furthermore, in our opinion, AllianceBernstein, maintained, in all material
respects, effective internal control over financial reporting as of December
31,
2006, based on criteria established in Internal
Control - Integrated Framework
issued
by the COSO. AllianceBernstein's management is responsible for maintaining
effective internal control over financial reporting and for its assessment
of
the effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on management’s assessment and on the
effectiveness of AllianceBernstein's internal control over financial reporting
based on our audit. We conducted our audit of internal control over financial
reporting in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. An audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial reporting,
evaluating management’s assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other
procedures as we consider necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures
of
the company are being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use,
or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers LLP
New
York,
New York
February
27, 2007
Report
of Independent Registered Public Accounting Firm
The
General Partner and Unitholders
AllianceBernstein
L.P.:
We
have
audited the accompanying consolidated statement of financial condition of
AllianceBernstein L.P. and subsidiaries (“AllianceBernstein”), formerly Alliance
Capital Management L.P., as of December 31, 2005, and the related consolidated
statements of income, changes in partners’ capital and comprehensive income and
cash flows for each of the years in the two-year period ended December 31,
2005.
These consolidated financial statements are the responsibility of the management
of the General Partner. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of AllianceBernstein as of
December 31, 2005, and the results of their operations and their cash flows
for
each of the years in the two-year period ended December 31, 2005, in conformity
with U.S. generally accepted accounting principles.
/s/
KPMG LLP
|
|
New
York, New York
|
February
24, 2006
|
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
As
we
disclosed in a Form 8-K filed on March 13, 2006, on March 8, 2006, the Audit
Committee (“Audit Committee”) of the Board engaged PricewaterhouseCoopers LLP
(“PwC”) as the independent registered public accountant to audit the financial
statements of Holding and the consolidated financial statements of
AllianceBernstein for the year ending December 31, 2006 (collectively,
“Financial Statements”). The Committee engaged PwC in order to facilitate the
audit of the consolidated financial statements of AXA Group, which includes
the
consolidated financial statements of AllianceBernstein. (PwC is the independent
registered public accountant that audits AXA Group’s consolidated financial
statements.) The Audit Committee reached the decision after considering the
facts and circumstances that the Audit Committee considered pertinent, including
PwC’s professional qualifications, PwC’s independence from the Partnerships, and
the amount of fees estimated by PwC to be charged for the audits of the
Financial Statements. The Audit Committee concluded that the engagement of
PwC
is in the best interests of the Partnerships and their respective unitholders.
Accordingly, on March 8, 2006, the Committee dismissed KPMG LLP as the
independent registered public accountant of the Partnerships.
Neither
AllianceBernstein nor Holding had any disagreements with accountants in respect
of accounting or financial disclosure.
Disclosure
Controls and Procedures
Each
of
Holding and AllianceBernstein maintains a system of disclosure controls and
procedures that is designed to ensure information required to be disclosed
in
our reports under the Exchange Act is (i) recorded, processed, summarized and
reported in a timely manner, and (ii) accumulated and communicated to
management, including the Chief Executive Officer and the Chief Financial
Officer, to permit timely decisions regarding our disclosure.
As
of the
end of the period covered by this report, management carried out an evaluation,
under the supervision and with the participation of the Chief Executive Officer
and the Chief Financial Officer, of the effectiveness of the design and
operation of disclosure controls and procedures. Based on this evaluation,
the
Chief Executive Officer and the Chief Financial Officer concluded that the
disclosure controls and procedures are effective.
Management’s
Report on Internal Control over Financial Reporting
Management
acknowledges its responsibility for establishing and maintaining adequate
internal control over financial reporting for each of Holding and
AllianceBernstein.
Internal
control over financial reporting is a process designed by, or under the
supervision of, a company’s principal executive officer and principal financial
officers, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes
in
accordance with U.S. generally accepted accounting principles (“GAAP”) and
includes those policies and procedures that:
|
|
Pertain
to the maintenance of records that, in reasonable detail, accurately
and
fairly reflect the transactions and dispositions of the assets of
the
company;
|
|
|
Provide
reasonable assurance that transactions are recorded as necessary
to permit
preparation of financial statements in accordance with GAAP, and
that
receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company;
and
|
|
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company’s assets that
could have a material effect on the financial
statements.
|
All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those internal control systems determined to be
effective can provide only reasonable assurance with respect to the reliability
of financial statement preparation and presentation. Because of these inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of effectiveness of internal
control to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management
assessed the effectiveness of each of Holding’s and AllianceBernstein’s internal
control over financial reporting as of December 31, 2006. In making its
assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in Internal
Control-Integrated Framework
(“COSO
criteria”). Management did not identify any material weakness in either
Holding’s or AllianceBernstein’s internal control over financial
reporting.
Based
on
its assessment, management believes that, as of December 31, 2006, each of
Holding and AllianceBernstein maintained effective internal control over
financial reporting based on the COSO criteria.
PricewaterhouseCoopers
LLP, the registered public accounting firm that audited the 2006 financial
statements included in this Form 10-K, has issued an attestation report on
management’s assessment of each of Holding’s and AllianceBernstein’s internal
control over financial reporting. These reports can be found in Item
8.
Changes
in Internal Control Over Financial Reporting
No
change
in our internal control over financial reporting occurred during the fourth
quarter of 2006 that materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting. We believe that the
documentation, testing, and remediation of internal controls that we undertook
to make the assessment above has served generally to strengthen such internal
control.
Both
AllianceBernstein and Holding reported all information required to be disclosed
on Form 8-K during the fourth quarter of 2006.
PART III
|
Directors,
Executive Officers and Corporate
Governance
|
General
Partner
The
Partnerships’ activities are managed and controlled by the General Partner; the
Board of Directors of the General Partner (“Board”) acts as the Board of the
Partnerships. The General Partner has agreed that it will conduct no active
business other than managing the Partnerships, although it may make certain
investments for its own account. Neither AllianceBernstein Unitholders nor
Holding Unitholders have any rights to manage or control the Partnerships,
or to
elect directors of the General Partner. The General Partner is an indirect,
wholly-owned subsidiary of AXA Equitable.
The
General Partner does not receive any compensation from AllianceBernstein or
Holding for services rendered to them as their general partner. The General
Partner holds a 1% general partnership interest in AllianceBernstein and 100,000
units of general partnership interest in Holding. Each general partnership
unit
in Holding is entitled to receive quarterly distributions equal to those
received by each limited partnership unit.
The
General Partner is reimbursed by AllianceBernstein for all expenses it incurs
in
carrying out its activities as general partner of the Partnerships, including
compensation paid by the General Partner to its directors and officers (to
the
extent such persons are not compensated directly as employees of
AllianceBernstein) and the cost of directors and officers liability insurance
obtained by the General Partner. In 2006, the General Partner was reimbursed
only for directors and officers/errors and omissions liability insurance
premiums.
Directors
and Executive Officers
The
directors and executive officers of the General Partner are as follows (officers
of the General Partner may also serve as officers of AllianceBernstein and
Holding):
Name
|
|
Age
|
|
Position
|
Lewis
A. Sanders
|
|
60
|
|
Chairman
of the Board and Chief Executive Officer
|
Dominique
Carrel-Billiard
|
|
40
|
|
Director
|
Henri
de Castries
|
|
52
|
|
Director
|
Christopher
M. Condron
|
|
59
|
|
Director
|
Denis
Duverne
|
|
53
|
|
Director
|
Peter
Etzenbach
|
|
39
|
|
Director
|
Weston
M. Hicks
|
|
50
|
|
Director
|
Gerald
M. Lieberman
|
|
60
|
|
Director,
President and Chief Operating Officer
|
Lorie
A. Slutsky
|
|
54
|
|
Director
|
A.W.
(Pete) Smith, Jr.
|
|
63
|
|
Director
|
Peter
J. Tobin
|
|
62
|
|
Director
|
Lawrence
H. Cohen
|
|
45
|
|
Executive
Vice President
|
Laurence
E. Cranch
|
|
60
|
|
Executive
Vice President and General Counsel
|
Edward
J. Farrell
|
|
46
|
|
Senior
Vice President and Controller
|
Sharon
E. Fay
|
|
46
|
|
Executive
Vice President
|
Marilyn
G. Fedak
|
|
60
|
|
Executive
Vice President
|
James
A. Gingrich
|
|
48
|
|
Executive
Vice President
|
Mark
R. Gordon
|
|
53
|
|
Executive
Vice President
|
Thomas
S. Hexner
|
|
50
|
|
Executive
Vice President
|
Robert
H. Joseph, Jr.
|
|
59
|
|
Senior
Vice President and Chief Financial Officer
|
Mark
R. Manley
|
|
44
|
|
Senior
Vice President, Deputy General Counsel and Chief Compliance
Officer
|
Seth
J. Masters
|
|
47
|
|
Executive
Vice President
|
Marc
O. Mayer
|
|
49
|
|
Executive
Vice President
|
Douglas
J. Peebles
|
|
41
|
|
Executive
Vice President
|
Jeffrey
S. Phlegar
|
|
40
|
|
Executive
Vice President
|
James
G. Reilly
|
|
45
|
|
Executive
Vice President
|
Paul
C. Rissman
|
|
50
|
|
Executive
Vice President
|
Lisa
A. Shalett
|
|
43
|
|
Executive
Vice President
|
David
A. Steyn
|
|
47
|
|
Executive
Vice President
|
Christopher
M. Toub
|
|
47
|
|
Executive
Vice President
|
Biographies
Mr. Sanders
was elected Chairman of the Board of the General Partner effective
January 1, 2005 and Chief Executive Officer of AllianceBernstein effective
July 1, 2003. Before taking on his current roles, he served as Vice
Chairman and Chief Investment Officer since the Bernstein Transaction in 2000.
Prior to the Bernstein Transaction, Mr. Sanders had served as Chairman and
Chief
Executive Officer of Bernstein since 1992; he began his career with Bernstein
in
1968 as a research analyst. Mr. Sanders is the Chairman and Chief Executive
Officer of SCB Inc.
Mr.
Carrel-Billiard was elected a Director of the General Partner in July 2004.
He
has been Chief Executive Officer of AXA Investment Managers since June 30,
2006.
Mr. Carrel-Billiard joined AXA in May 2004 as the Senior Vice President-Business
Support and Development in charge of AXA Financial, asset management and
reinsurance. Prior to joining AXA, Mr. Carrel-Billiard was a Partner of McKinsey
and Company where he specialized in the financial services industry. During
the
12 years he spent at McKinsey, Mr. Carrel-Billiard worked on a broad array
of
topics (including insurance, asset gathering and management, and corporate
and
investment banking) for the top management of international banks, insurance
companies, including AXA, and other financial services groups. Mr.
Carrel-Billiard also led the European Retail Savings and Life Insurance
practice, with focus on distribution issues for asset gathering products to
retail investors. AXA and AXA Financial are parents of AllianceBernstein. AXA
Financial and AXA Investment Managers are subsidiaries of AXA.
Mr. de
Castries was elected a Director of the General Partner in October 1993.
Since May 3, 2000, he has been Chairman of the Management Board of AXA.
Prior thereto, he served AXA in various capacities, including Vice Chairman
of
the Management Board; Senior Executive Vice President-Financial Services and
Life Insurance Activities in the United States, Germany, the United Kingdom,
and
Benelux from 1996 to 2000; Executive Vice President-Financial Services and
Life
Insurance Activities from 1993 to 1996; General Secretary from 1991 to 1993;
and
Central Director of Finances from 1989 to 1991. He is also a director or officer
of AXA Financial, AXA Equitable, and various other subsidiaries and affiliates
of the AXA Group. Mr. de Castries was elected Vice Chairman of AXA
Financial on February 14, 1996 and was elected Chairman of AXA Financial,
effective April 1, 1998.
Mr. Condron
was elected a Director of the General Partner in May 2001. He has been
Director, President and Chief Executive Officer of AXA Financial since
May 2001. He is Chairman of the Board and Chief Executive Officer of AXA
Equitable and a member of the AXA Group Management Board. In addition,
Mr. Condron is Chairman of the Board, President and Chief Executive Officer
of MONY Life Insurance Company, which AXA Financial acquired in July 2004.
Prior to joining AXA Financial, Mr. Condron served as both President and
Chief Operating Officer of Mellon Financial Corporation (“Mellon”), from 1999,
and as Chairman and Chief Executive Officer of The Dreyfus Corporation, a
subsidiary of Mellon, from 1995. Mr. Condron is a member of the Board of
Directors of KBW, Inc., a full-service investment bank and broker-dealer. He
also serves as Chairman of KBW’s compensation committee and as a member of its
audit committee and its corporate governance and nominating
committee.
Mr. Duverne
was elected a Director of the General Partner in February 1996. He has been
Chief Financial Officer of AXA since May 2003 and, from January 2000 to May
2003, served as Group Executive Vice President-Finance, Control and Strategy.
Mr. Duverne joined AXA as Senior Vice President in 1995. He is a Director
of AXA Financial, AXA Equitable, and various other subsidiaries and affiliates
of the AXA Group.
Mr.
Etzenbach was elected a Director of the General Partner in May 2006.
He
is
Senior Vice President-Business Support and Development of AXA in charge of
AXA
Equitable, asset management, and reinsurance. He joined the AXA Group in 2005
as
a lead strategic auditor in the AXA Group Audit Department. Prior to joining
AXA, Mr. Etzenbach was an Executive Director of Goldman Sachs in investment
banking and equity capital markets. During the 13 years he spent at Goldman
Sachs, Mr. Etzenbach held various management roles, including Business Unit
Manager for the European Investment Banking Division (2001 to 2002) and Chief
Operating Officer for the Sovereign Effort, a position which reported to the
Vice Chairman of Goldman Sachs International (2004).
Mr. Hicks
was elected a Director of the General Partner in July 2005. He has been a
Director and the President and chief executive officer of Alleghany Corporation
(“Alleghany”), an insurance and diversified financial services holding company
since December 2004 and was Executive Vice President of Alleghany from October
2002 until December 2004. From March 2001 through October 2002, Mr. Hicks was
Executive Vice President and Chief Financial Officer of The Chubb Corporation
and from March 1999 through March 2001, he was a Managing Director of J.P.
Morgan Securities.
Mr. Lieberman was
elected a Director of the General Partner and the Chief Operating Officer
of AllianceBernstein in November 2003 and was elected President of
AllianceBernstein in November 2004, when he was also elected a member of
AXA’s Executive Committee. Mr. Lieberman joined AllianceBernstein in
October 2000 and served as Executive Vice President - Finance and
Operations of AllianceBernstein from November 2000 to November 2003.
Prior to the Bernstein Transaction, Mr. Lieberman served as a Senior Vice
President, Finance and Administration of Bernstein, which he joined in 1998,
and
was a member of Bernstein’s Board of Directors. Mr. Lieberman is a Director
of SCB Inc.
Ms. Slutsky
was elected a Director of the General Partner in July 2002. She has been
President and Chief Executive Officer of The New York Community Trust, a $2
billion community foundation which annually grants more than $150 million,
since
January 1990. Ms. Slutsky has been a Director of AXA Financial, AXA
Equitable, and certain other subsidiaries of AXA Financial since September
2006.
Mr.
Smith
was elected a Director of the General Partner in July 2005. He was President
and
Chief Executive Officer of the Private Sector Council, a non-profit public
service organization dedicated to improving the efficiency, management and
productivity of the federal government, from September 2000 until his retirement
in May 2005. He is President of Smith Consulting.
Mr. Tobin
was elected a Director of the General Partner in May 2000. From September
2003 to June 2005, he was Special Assistant to the President of St. John’s
University. Prior thereto, Mr. Tobin served as Dean of the Tobin College of
Business of St. John’s University from August 1998 to September 2003.
As Dean, Mr. Tobin was the chief executive and academic leader of the
College of Business. Mr. Tobin was Chief Financial Officer at The Chase
Manhattan Corporation from 1996 to 1997. Prior thereto, he was Chief Financial
Officer of Chemical Bank (which merged with Chase in 1996) from 1991 to 1996
and
Chief Financial Officer of Manufacturers Hanover Trust (which merged with
Chemical in 1991) from 1985 to 1991. Mr. Tobin is on the Boards of
Directors of The H.W. Wilson Co. and CIT Group Inc. He has been a Director
of AXA Financial since March 1999.
Mr. Cohen
has been Executive Vice President and Chief Technology Officer since joining
AllianceBernstein in 2004. In this role, he is responsible for technology
strategy, application development, and infrastructure services throughout
AllianceBernstein. Prior to joining AllianceBernstein, Mr. Cohen held
executive IT positions at UBS, Goldman Sachs, Morgan Stanley, and Fidelity
Investments.
Mr. Cranch
has been Executive Vice President and General Counsel since joining
AllianceBernstein in 2004. Prior to joining AllianceBernstein, Mr. Cranch
was a partner of Clifford Chance, an international law firm. Mr. Cranch
joined Clifford Chance in 2000 when Rogers & Wells, a New York law firm
of which he was Managing Partner, merged with Clifford Chance.
Mr.
Farrell has been Senior Vice President and Controller since joining
AllianceBernstein in 2003. He also serves as the Chief Financial Officer of
SCB
LLC. From 1994 through 2003, Mr. Farrell worked at Nomura Securities
International, where he was a Managing Director and a member of the senior
management committee. He also held various financial positions including
Controller and Chief Financial Officer.
Ms. Fay
joined Bernstein in 1990 as a research analyst in investment management,
following the airlines, lodging, trucking, and retail industries, and has been
Executive Vice President and Chief Investment Officer-Global Value Equities
of
AllianceBernstein since 2003, overseeing all portfolio management and research
activities relating to cross-border and non-U.S. value investment portfolios
and
chairing the Global Value Investment Policy Group. Until January 2006,
Ms. Fay was Co-Chief Investment Officer-European and U.K. Value Equities, a
position she assumed with Bernstein in 1999.
Between
1997 and 1999, she was Chief Investment Officer-Canadian Value Equities with
Bernstein. Prior to that, she had been a senior portfolio manager of
International Value Equities since 1995.
Ms. Fedak
joined Bernstein in 1984 as a senior portfolio manager. An Executive Vice
President of AllianceBernstein since 2000, she is Head of Global Value Equities
and Chair of the U.S. Large Cap Value Equity Investment Policy Group. From
1993
through 2000, Ms. Fedak was Chief Investment Officer for U.S. Value Equities;
in
2003, she named a Co-CIO. Ms. Fedak is also a Director of
SCB Inc.
Mr.
Gingrich joined Bernstein in 1999 as a senior research analyst covering the
U.S.
household and personal products industry. He became an Executive Vice President
of AllianceBernstein and the Chairman and Chief Executive Officer of SCB LLC
in
February 2007. Prior to becoming Chairman and CEO of SCB LLC, Mr. Gingrich
served as Global Director of Research for SCB LLC’s U.S. and European
operations. Mr. Gingrich was elected a Senior Vice President of
AllianceBernstein in 2002.
Mr. Gordon
joined Bernstein in 1983 and currently serves as Director of Global Quantitative
Research of AllianceBernstein, co-head of Alternative Investments, and Chief
Investment Officer for the Global Diversified Funds. He was elected an Executive
Vice President of AllianceBernstein in February 2004. Mr. Gordon previously
served as Bernstein’s Head of Risk Management, Director of Product Development,
and Director of Quantitative Research.
Mr. Hexner
joined Bernstein in 1986 as a financial advisor. An Executive Vice President
of
AllianceBernstein since 2000, he is Head of Bernstein GWM and oversees the
firm’s private client business worldwide. Mr. Hexner has been responsible for
the firm’s private client business since 1996. He was named President of
Bernstein Investment Research and Management, a unit of AllianceBernstein,
in
2000, and Head of Bernstein GWM in 2006 in recognition of the global expansion
of the private client business. Mr. Hexner is a Director of
SCB Inc.
Mr. Joseph
joined AllianceBernstein in 1984 and held various financial positions until
his
election as Senior Vice President and Chief Financial Officer in 1994. Before
joining AllianceBernstein, Mr. Joseph was a Senior Audit Manager with Price
Waterhouse for 13 years.
Mr. Manley
joined AllianceBernstein in 1984 and currently serves as Senior Vice President,
Deputy General Counsel and Chief Compliance Officer. Mr. Manley served as
Acting General Counsel from July 2003 through July 2004 and has served
as the company’s Chief Compliance Officer since 1988. From February 1998
through June 2003, Mr. Manley was Senior Vice President and Assistant
General Counsel. From February 1992 through February 1998, he was Vice
President and Counsel.
Mr. Masters
joined Bernstein in 1991 as a research analyst covering banks, insurance
companies, and other financial firms. He currently heads the AllianceBernstein
Blend Strategies team and is Chief Investment Officer for Style Blend, roles
he
has held since 2002. Mr. Masters was named Executive Vice President of
AllianceBernstein in 2004 and Senior Vice President in 2000. Between 1994 and
2002, Mr. Masters was Chief Investment Officer of Emerging Markets Value
equities, a service he took the lead in designing.
Mr. Mayer
joined Bernstein in 1989 as a research analyst and research director in the
institutional research services group and has been an Executive Vice President
of AllianceBernstein since 2000. He was elected Executive Managing Director
of
AllianceBernstein Investments in November 2003; he was Head of
AllianceBernstein Institutional Investments from 2001 until that time. Prior
to
2001, Mr. Mayer was Head of SCB LLC. Mr. Mayer is a Director of
SCB Inc.
Mr. Peebles
joined AllianceBernstein in 1987 and has been an Executive Vice President of
AllianceBernstein and Co-Chief Investment Officer of AllianceBernstein Fixed
Income since 2004. He is also Director of Global Fixed Income, with investment
responsibility for the institutional and retail global fixed income portfolios
managed by AllianceBernstein and oversight responsibility for all global and
non-U.S. regional fixed income teams. Mr. Peebles served as a Senior Vice
President in Global Fixed Income from 1998 until 2004.
Mr. Phlegar
joined AllianceBernstein in 1993 and has been an Executive Vice President of
AllianceBernstein and Co-Chief Investment Officer of AllianceBernstein Fixed
Income since 2004. He served as a Senior Vice President in U.S. Investment
Grade
Fixed Income from 1998 until 2004. Prior to joining AllianceBernstein,
Mr. Phlegar managed high grade securities for regulated insurance entities
at Equitable Capital Management Corporation, which AllianceBernstein acquired
in
1993.
Mr. Reilly
joined AllianceBernstein in 1985 as a Vice President and quantitative and
fundamental research analyst covering airlines and railroads, and is currently
U.S. Large Cap Growth team leader. He has been an Executive Vice President
since
1999 and a portfolio manager with AllianceBernstein’s large cap growth team
since 1988. Mr. Reilly was a Senior Vice President of AllianceBernstein from
1993 until 1999.
Mr. Rissman
joined AllianceBernstein in 1989 as a quantitative analyst and earlier this
year
became our firm’s Chief Investment Officer of Growth Equities while continuing
as the head of growth equity services, a role he has held since 2004. He had
been Director of Research—Global Growth Equities since 2000. Mr. Rissman has
been an Executive Vice President of AllianceBernstein since 2000. He led the
Relative Value investment team from 1995 to 2004.
Ms. Shalett
joined Bernstein in 1995. In February 2007, she became Head of Global Research
for Growth Equities. Prior to this role on the buy-side, Ms. Shalett lead our
sell-side equity research business as Chair and Chief Executive Officer of
SCB
LLC, a position she had held since 2002. Previously, Ms. Shalett served as
Director of Global Research for U.S. and European companies and as senior
research analyst covering capital goods and diversified industrials, again
both
on the sell-side. She has been an Executive Vice President of AllianceBernstein
since 2002.
Mr. Steyn
joined Bernstein in 1999, having been the founding co-Chief Executive Officer
of
Bernstein’s London office, and has been an Executive Vice President of
AllianceBernstein and Head of AllianceBernstein Institutional Investments since
November 2003. Mr. Steyn was elected a Senior Vice President of
AllianceBernstein in 2000.
Mr. Toub
joined AllianceBernstein in 1992 as a portfolio manager with the Disciplined
Growth group. He has been an Executive Vice President of AllianceBernstein
since
1999 and Head of Global/International Growth Equities since 1998. Mr. Toub
became Chief Executive Officer of AllianceBernstein Limited, a London-based
wholly-owned subsidiary of AllianceBernstein, in April 2005. He served as
Director of Research—Global Growth Equities from 1998 through 2000.
Recent
Director Resignations
Stanley
B. Tulin resigned from the Board effective January 1, 2007.
Roger
Hertog resigned from the Board effective December 31, 2006.
W.
Edwin
Jarmain resigned from the Board effective February 25, 2006.
Corporate
Governance
Board
of Directors
The
Board
holds quarterly meetings, generally in February, May, July/August, and
November of each year, and holds special meetings or takes action by
unanimous written consent as circumstances warrant. The Board has standing
Executive, Corporate Governance, Audit, and Compensation Committees, each of
which is described in further detail below. Of the directors, only Mr.
Carrel-Billiard attended fewer than 75% of the aggregate of all Board and
committee meetings which he was entitled to attend in 2006.
Committees
of the Board
The
Executive Committee of the Board (“Executive Committee”) is composed of
Messrs. Condron, Duverne, Lieberman, Sanders (Chair), and Tobin, and
Ms. Slutsky. The Executive Committee exercises all of the powers and
authority of the Board (with limited exceptions) when the Board is not in
session, or when it is impractical to assemble the Board. The Executive
Committee held four meetings in 2006.
A
more
complete description of the Executive Committee’s functions is set forth in the
committee’s charter, which is available online at our Internet site
(http://www.alliancebernstein.com).
The
Corporate Governance Committee of the Board (“Governance Committee”) is composed
of Mr. Condron, Mr. Sanders, and Ms. Slutsky (Chair). The
Governance Committee assists the Board in (i) identifying and evaluating
qualified individuals to become Board members; (ii) determining the
composition of the Board and its committees; (iii) developing and
monitoring a process to assess Board effectiveness; (iv) developing and
implementing our corporate governance guidelines; and (v) reviewing our
policies and programs that relate to matters of corporate responsibility of
the
General Partner and the Partnerships. The Governance Committee held two meetings
in 2006.
A
more
complete description of the Governance Committee’s functions is set forth in the
committee’s charter, which is available online at our Internet site
(http://www.alliancebernstein.com).
The
Audit
Committee of the Board (“Audit Committee”) is composed of Messrs. Hicks,
Smith, and Tobin (Chair). The primary purposes of the Audit Committee are to:
(i) assist the Board in its oversight of (1) the integrity of the
financial statements of the Partnerships, (2) the Partnerships’ status and
system of compliance with legal and regulatory requirements and business
conduct, (3) the independent registered public accounting firm’s
qualification and independence, and (4) the performance of the
Partnerships’ internal audit function; and (ii) oversee the appointment,
retention, compensation, evaluation, and termination of the Partnerships’
independent registered public accounting firm. Consistent with this function,
the Audit Committee encourages continuous improvement of, and fosters adherence
to, the Partnerships’ policies, procedures, and practices at all levels. With
respect to these matters, the Audit Committee provides an open avenue of
communication among the independent registered public accounting firm, senior
management, the Internal Audit Department, and the Board. The Audit Committee
held nine meetings in 2006.
A
more
complete description of the Audit Committee’s functions is set forth in the
committee’s charter, which is available online at our Internet site
(http://www.alliancebernstein.com).
The
Compensation Committee of the Board (“Compensation Committee”) is composed of
Messrs. Condron (Chair), Sanders, and Smith, and Ms. Slutsky. For
additional information about the Compensation Committee, see
“Executive Compensation - Compensation Discussion & Analysis” in Item
11.
In
2003,
the Board appointed a Special Committee, now consisting of Ms. Slutsky and
Mr.
Tobin (Chair), to oversee a number of matters relating to investigations by
the
NYAG, the SEC, and other regulators. The Special Committee remains responsible
for overseeing the handling of related unitholder derivative suits and
distributing the Restitution Fund (for additional information, see
“Business - Regulation” in Item 1).
The
members of the Special Committee do not receive any additional compensation
for
their service on the Special Committee, apart from the ordinary meeting fees
described
in “Executive Compensation - Director Compensation” in Item 11.
The
Special Committee met once during 2006.
Audit
Committee Financial Expert
The
Governance Committee, after reviewing materials prepared by management,
recommended that the Board determine that each of Weston M. Hicks and Peter
J.
Tobin is an “audit committee financial expert” within the meaning of Item
401(h) of Regulation S-K. The Board so determined at its February 2007
regular meeting. The Board also determined at that meeting that each member
of
the Audit Committee (Messrs. Hicks, Smith, and Tobin) is financially literate
and possesses accounting or related financial management expertise, as
contemplated by Section 303A.07(a) of the NYSE Listed Company
Manual.
Independence
of Certain Directors
The
Governance Committee, after reviewing materials prepared by management,
recommended that the Board determine that each of Mr. Hicks, Ms. Slutsky, Mr.
Smith, and Mr. Tobin is “independent” within the meaning of Section 303A.02 of
the NYSE Listed Company Manual. The Board considered immaterial relationships
of
Mr. Hicks (relating to Alleghany Corporation being a client of SCB LLC), and
Ms.
Slutsky (relating to contributions made by AllianceBernstein to The New York
Community Trust, of which she is President and Chief Executive Officer) and
then
determined, at its February 2007 regular meeting, that each of Mr. Hicks, Ms.
Slutsky, Mr. Smith, and Mr. Tobin is independent within the meaning of the
relevant rules.
Code
of Ethics and Related Policies
All
of
our directors, officers and employees are subject to our Code of Business
Conduct and Ethics. The code is intended to comply with Rule 17j-1 under
the Investment Company Act and recommendations issued by the Investment Company
Institute regarding, among other things, practices and standards with respect
to
securities transactions of investment professionals, as well as Rule 204A-1
under the Investment Advisers Act and Section 303A.10 of the NYSE Listed
Company Manual. The Code of Business Conduct and Ethics establishes certain
guiding principles for all of our employees, including sensitivity to our
fiduciary obligations and ensuring that we meet those obligations. Our Code
of
Business Conduct and Ethics may be found in the “Corporate Governance” portion
of our Internet site (http://www.alliancebernstein.com).
We
have
adopted the Code of Ethics for the Chief Executive Officer and Senior Financial
Officers, which is intended to comply with Section 406 of the
Sarbanes-Oxley Act of 2002 (“Item 406 Code”). The Item 406 Code was adopted on
October 28, 2004 by the Executive Committee. We intend to satisfy the
disclosure requirements under Item 5.05 of Form 8-K regarding certain
amendments to, or waivers from, provisions of the Item 406 Code that apply
to
the Chief Executive Officer, Chief Financial Officer and Controller by posting
such information on our Internet site (http://www.alliancebernstein.com).
NYSE
Governance Matters
Section
303A.00 of the NYSE Listed Company Manual exempts limited partnerships from
compliance with Section 303A.01 (majority of independent directors), 303A.04
(corporate governance committee with only independent directors as its members),
and 303A.05 (compensation committee with only independent directors as its
members) of the NYSE Listed Company Manual. Holding is a limited partnership
(as
is AllianceBernstein). In addition, because the General Partner is a
wholly-owned subsidiary of AXA Equitable, and the General Partner controls
Holding (and AllianceBernstein), we believe we would also qualify for the
“controlled company” exemption. Notwithstanding the foregoing, the Board has
adopted a Corporate Governance Committee Charter that complies with Section
303A.04 and a Compensation Committee Charter that complies with Section 303A.05.
However,
not all members of these committees are independent.
Our
Corporate Governance Guidelines (“Guidelines”) promote the effective functioning
of the Board and its committees, promote the interests of the Partnerships’
respective unitholders, with appropriate regard to the Board’s duties to the
sole stockholder of the General Partner, and set forth a common set of
expectations as to how the Board, its various committees, individual directors,
and management, should perform their functions. The Guidelines may be found
in
the “Corporate Governance” portion of our Internet site (http://www.alliancebernstein.com).
The
Corporate Governance Committee is responsible for considering any request for
a
waiver under the Code of Business Conduct and Ethics, the Item 406 Code, the
AXA
Code of Business Conduct, and AXA Financial Policy Statement on Ethics from
any
director or executive officer of the General Partner. Any such waiver that
has
been granted is set forth in the “Corporate Governance” portion of our Internet
site (http://www.alliancebernstein.com).
No
such waivers were granted during the fourth quarter of 2006.
Peter
J.
Tobin has been chosen to preside at all executive sessions of non-management
and
independent directors. Interested parties wishing to communicate directly with
Mr. Tobin may send an e-mail, with “confidential” in the subject line, to
[email protected].
Upon
receipt, our Corporate Secretary will promptly forward all such e-mails to
Mr.
Tobin. Interested parties may also address mail to Mr. Tobin in care of
Corporate Secretary, AllianceBernstein Corporation, 1345 Avenue of the Americas,
New York, NY 10105, and the Corporate Secretary will promptly forward such
mail
to Mr. Tobin. We have posted this information in the “Corporate Governance”
portion of our Internet site (http://www.alliancebernstein.com).
Our
Internet site (www.alliancebernstein.com),
under
the heading “Contact our Directors,” provides an e-mail address for any
interested party, including unitholders, to communicate with the Board of
Directors. Our Corporate Secretary reviews e-mails sent to that address and
has
some discretion in determining how or whether to respond, and in determining
to
whom such e-mails should be forwarded. In our experience, substantially all
of
the e-mails received are ordinary client requests for administrative assistance
or solicitations of various kinds, and are best addressed by
management.
The
2006
Certification by our Chief Executive Officer under NYSE Listed Company Manual
Section 303A.12(a) was submitted to the NYSE on March 8,
2006.
Certifications
by our Chief Executive Officer and Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 have been furnished as
exhibits to this Form 10-K.
Holding
and AllianceBernstein Unitholders may request a copy of any committee charter,
the Guidelines, and the Code of Business Conduct and Ethics by contacting the
Corporate Secretary of AllianceBernstein ([email protected]).
The
charters and memberships of the Corporate Governance Committee and the
Compensation Committee, as well as the Executive Committee and the Audit
Committee, may be found in the “Corporate Governance” portion of our Internet
site (http://www.alliancebernstein.com).
Management
Committees
The
Management Executive Committee is composed of Messrs. Cohen, Cranch,
Gingrich, Gordon, Hexner, Lieberman, Manley, Masters, Mayer, Peebles, Phlegar,
Reilly, Rissman, Sanders, Steyn, and Toub, and Mesdames Fay, Fedak, and Shalett,
who together are the group of key executives responsible for managing
AllianceBernstein, enacting strategic initiatives, and allocating resources
to
our company’s various departments. Mr. Sanders serves ex-officio
as
Chairman of the Management Executive Committee. The Management Executive
Committee meets on a regular basis and at such other times as circumstances
warrant.
The
Code
of Ethics Oversight Committee (“Ethics Committee”), composed of each member of
the Management Executive Committee and certain other senior executives, oversees
all matters relating to issues arising under the AllianceBernstein Code of
Business Conduct and Ethics. The Ethics Committee, which was created pursuant
to
the SEC Order (see
“Business - Regulation” in Item 1),
meets
on a quarterly basis and at such other times as circumstances
warrant.
The
Internal Compliance Controls Committee (“Compliance Committee”), also composed
of each member of the Management Executive Committee and certain other senior
executives, reviews compliance issues throughout our company, endeavors to
develop solutions to those issues as they may arise from time-to-time, and
oversees implementation of those solutions. The Compliance Committee, which
was
created pursuant to the SEC Order (see
“Business - Regulation” in Item 1),
meets
on a quarterly basis and at such other times as circumstances
warrant.
Section 16(a) Beneficial
Ownership Reporting Compliance
Section 16(a) of
the Exchange Act requires directors of the General Partner and executive
officers of the Partnerships, and persons who own more than 10% of the Holding
Units or AllianceBernstein Units, to file with the SEC initial reports of
ownership and reports of changes in ownership of Holding Units or
AllianceBernstein Units. To the best of management’s knowledge, during 2006:
(i) all Section 16(a) filing requirements relating to Holding
were complied with, except that a Form 4 was filed late for each of Ms. Shalett
and Messrs. Cohen, Cranch, Farrell, Hexner, Lieberman, Peebles, and Reilly
in
respect of each person’s decision to notionally invest a portion of his or her
2005 award under the Amended and Restated AllianceBernstein Partners
Compensation Plan in Holding Units; and
(ii) all Section 16(a) filing requirements relating to
AllianceBernstein were complied with. You can find our Section 16 filings under
“Investor & Media Relations” / “Reports & SEC Filings” on our Internet
site (http://www.alliancebernstein.com).
Compensation
Discussion and Analysis (“CD&A”)
Overview
of Compensation Philosophy and Program
The
intellectual capital possessed by our employees is collectively the most
important asset of our firm. We invest in people - we hire qualified people,
train them, encourage them to give their best thinking to the firm and our
clients, and compensate them in a manner designed to retain and motivate them.
As
a
result, employee compensation and benefits are significant, comprising
approximately 56% of our operating expenses and approximately 39% of our net
revenues for 2006.
These
percentages are not unusual for companies in the financial services industry.
The magnitude of this expense also requires that it be monitored by management,
and overseen by the Board, with the particular attention of the Compensation
Committee.
We
believe that the quality, skill, and dedication of our executive officers are
critical factors that enhance the long-term value of our company. Our key
compensation goals are to attract highly-qualified executive talent, retain
our
key leaders, provide rewards for the past year’s performance, provide incentives
for future performance, and align our executives’ long-term interests with those
of our clients and, ultimately, our Unitholders. We believe that fundamental
success in achieving good results for the firm, and for our Unitholders, must
flow from achieving investment success for our clients. Accordingly, in recent
years, our deferred incentive compensation award program has encouraged our
executives to allocate their awards on a notional basis to the investment
products we offer to our clients, in addition to notional investments in Holding
Units and, in certain cases (see
below),
investments in options to buy Holding Units.
Historically,
we have used a variety of compensation elements to achieve the goals described
above. Currently, we use base salary, annual cash bonuses, a deferred
compensation plan (the Amended and Restated AllianceBernstein Partners
Compensation Plan, “Partners Plan”), a defined contribution plan, and Holding
Unit options, all of which are discussed in more detail below.
We
do not
set financial performance targets for the firm, and management efforts are
not
directed at meeting any such specific targets. Estimates are developed for
budgeting and strategic planning purposes, but no employee or officer
compensation is directly tied to “hitting” or “missing” target revenue or income
figures, although some salespeople do have compensation incentives based on
sales levels.
Decisions
about executive officer compensation are based primarily on our assessment
of
each executive’s leadership, operational performance, and potential to enhance
investment returns and service for our clients, and in doing so contribute
to
long-term Unitholder value. We rely upon our judgment about each executive’s
performance — rather than utilizing quantitative formulas—in determining the
amount and mix of compensation elements and whether each particular payment
or
award provides an appropriate reward for the current year’s performance. Key
factors that we consider include: performance compared to the operational and
strategic goals established for the executive at the beginning of the year;
nature, scope, and level of responsibilities; contribution to the company’s
commitment to create and maintain a fiduciary culture in which clients’
interests are paramount; and contribution to our overall financial
results.
We
also
consider each executive’s current salary, and prior-year cash bonus and deferred
award, the appropriate balance between incentives for long-term and short-term
performance, and the compensation paid to the executive’s peers within the
company. In addition, we review information provided by McLagan Associates,
compensation consultants retained by management, about compensation levels
at
other companies that we believe provide useful comparisons. In
general, we believe that employees should be well-compensated, but that
significant portions of compensation should be deferred and earned for service
in future periods, which provides an incentive for key employees to remain
with
the firm. Because deferred awards are notionally invested in the firm’s
investment products (no more than 50% of an award may be allocated to Holding
Units and options to buy Holding Units), employees’ interests are aligned with
client success.
The
gross amount of incentive compensation available is a function of our overall
financial performance; a “bonus pool” is calculated based on annual operating
income and institutional research revenues. In 2005 and 2006, we granted
incentive compensation awards that, in the aggregate, were significantly less
than the bonus pool calculation permitted.
As
discussed above, we believe that alignment of the interests of employees and
clients is key to providing superior long-term returns for Unitholders. However,
there is a relatively small group of individuals to whom we wish to provide
additional financial incentives to remain with AllianceBernstein because
executive management believes they constitute the next generation of firm
leadership or because of their exceptional individual contributions to the
company’s success. In January 2007, the Compensation Committee approved the
Special Option Program (“Special Program”). The Special Program permits selected
senior officers to voluntarily allocate up to a specified portion of their
annual Partners Plan (described in greater detail below) award to
options to buy Holding Units; the firm matches this allocation on a two-for-one
basis. Only one member of the Management Executive Committee has been selected
to participate in the Special Program.
The
value
allocated to each such option equals the Black-Scholes value of the option
calculated on the option grant date. The exercise price for each option is
equal
to the price of a Holding Unit as reported for NYSE composite transactions
at
the close of trading on the option grant date. The option grant date was January
26, 2007, the date of the meeting of the Compensation Committee at which it
approved the granting of the options. One-third of the options have a 10-year
term and vest in equal annual increments on each of the first five anniversaries
of the grant date; two-thirds of the options have an 11-year term and vest
in
equal annual increments on each of the sixth through tenth anniversaries of
the
grant date.
Options
granted pursuant to the Special Program represent the first Holding Unit options
granted to employees as part of their year-end compensation packages since
December 2002. Independent directors receive annual grants of Holding Unit
options and Restricted Units (for additional information about these awards,
see
“Director Compensation” below).
Compensation
Elements for Executive Officers
Below
we
describe the key elements of our executive compensation.
1.
Base
Salary.
Base
salaries make up a small portion of executive officers’ total compensation, and
are maintained at low levels relative to salaries of executive management at
peer firms. Each of our chief executive officer and our former vice chairman
received a base salary for 2006 in the amount of $275,000; generally no other
officer at the firm was paid a base salary greater than $200,000 except for
amounts reflecting service in non-U.S. locations and related foreign exchange
rates. Within the relatively narrow range of base salaries paid to executive
officers, we consider individual experience, responsibilities and tenure with
the firm. The salaries we paid during 2006 to our chief executive officer,
chief
financial officer, and our three most highly compensated executive officers
(the
“named executive officers”) are shown in column (c) of the Summary Compensation
Table.
2.
Cash
Bonus.
We pay
annual cash bonuses in late December from the cash bonus pool to reward
individual performance for the year. These bonuses are based on management’s
evaluation (subject to the Compensation Committee’s review and approval) of each
executive’s performance during the year, and the performance of the executive’s
business unit or function, compared to our business, and operational goals
established at the beginning of the year, and in the context of our overall
performance. The cash bonuses we awarded last year to our named executive
officers are shown in column (d) of the Summary Compensation Table.
3.
Deferred
Compensation.
The
Partners Plan is an unfunded, non-qualified deferred compensation plan under
which awards may be granted to eligible employees. Since 2003, participants
have
been permitted to allocate their Partners Plan awards in a combination of
notional investments in certain of our investment services offered to clients
and notional investments in Holding Units. No more than 50% of an annual award
may be allocated to Holding Units. As described above, we have created a Special
Program which permits a limited number of employees to allocate a portion of
their Partners Plan award to options to buy Holding Units. A participant’s
allocation to options is subject to this 50% limitation.
The
value
used for Holding Units to effect a participant’s allocation to Holding Units
(but not to options) depends upon whether the trust related to the Partners
Plan
holds sufficient unallocated Holding Units to satisfy all such employee
allocations. If the trust does hold a sufficient number of Holding Units, then
the value used for the allocation is the closing price as reported for NYSE
composite transactions on a day shortly following the release of fourth quarter
earnings (“Post-Earnings Closing Price”). If the trust does not hold a
sufficient number of Holding Units, the company has historically directed the
trust to purchase additional Holding Units on the open market, in which case
the
Holding Units are valued for allocation purposes using the weighted average
of
the Post-Earnings Closing Price and the cost paid by AllianceBernstein to
acquire any additional Holding Units required.
Vesting
periods for Partners Plan awards range from four years to immediate, depending
on the age of the participant; all awards fully vest if a participant remains
in
our employ through December 1 in the year during which he or she turns
65.
Upon
vesting, awards are distributed to participants unless the participant has,
in
advance, voluntarily elected to defer receipt to future periods. Quarterly
cash
distributions on unvested Holding Units for which a deferral election has not
been made are paid currently to participants. Quarterly cash distributions
on
vested and unvested Holding Units for which a voluntary deferral election has
been made, and earnings credited on investment services, are reinvested and
distributed as elected by participants.
Mr.
Sanders, our chief executive officer, is compensated in accordance with the
October 2006 employment agreement between himself and our company. Substantially
all of the compensation to be paid to him under that agreement vests on a
deferred basis in accordance with the terms of the agreement, and is distributed
to Mr. Sanders upon vesting. The deferral of such awards, and the notional
investments available for such awards, serve essentially the same function
as
the deferral of Partners Plan awards. Holding Units are not a permitted
investment under this agreement.
4.
Special
Option Program.
As
discussed above, the Compensation Committee recently approved the Special
Program, which provides for a select group of senior management recommended
by
management and approved by the Compensation Committee to allocate a portion
of
their Partners Plan awards to options to buy Holding Units, and to receive
a
two-for-one match of such allocated amount. Because the Special Program is
designed to retain individuals whom we believe will make up the next generation
of the firm’s leadership, the named executive officers listed in the Summary
Compensation Table below were not selected to participate in the Special
Program.
5.
Defined
Contribution Plan.
All
employees are eligible to participate in the Amended and Restated Profit Sharing
Plan for Employees of AllianceBernstein L.P. (“Profit Sharing Plan”), a
tax-qualified plan. The Compensation Committee determines the amount of company
contributions (both the level of annual matching by the firm of an employee’s
pre-tax salary deferral contributions and the annual company profit sharing
contribution). In recent years, we have matched employee deferral contributions
on a one-to-one basis up to five percent of eligible compensation; profit
sharing contributions have been an additional five percent of eligible
compensation.
Compensation
Committee
The
Compensation Committee is composed of Messrs. Condron (Chair), Sanders, and
Smith, and Ms. Slutsky. As discussed elsewhere (see
“Directors, Executive Officers and Corporate Governance - NYSE Governance
Matters” in Item 10),
because it is a limited partnership, Holding is exempt from NYSE rules that
require public companies to have a compensation committee made up solely of
independent directors. Because AXA owns, indirectly, an approximate 60% economic
interest in AllianceBernstein, and because compensation expense is such a
significant factor in our financial results, Mr. Condron, President and Chief
Executive Officer of AXA Financial, serves as chairman of the Compensation
Committee.
The
Compensation Committee has general oversight of compensation and
compensation-related matters, including, but not limited to:
(i) determining cash bonuses; (ii) determining contributions and
awards under incentive plans or other compensation arrangements (whether
qualified or non-qualified) for employees of AllianceBernstein and its
subsidiaries, and amending or terminating such plans or arrangements or any
welfare benefit plan or arrangement or making recommendations to the Board
with
respect to adopting any new incentive compensation plan, including equity-based
plans; (iii) reviewing and approving corporate goals and objectives
relevant to the compensation of our chief executive officer, evaluating his
performance in light of those goals and objectives, and determining and
approving his compensation level based on this evaluation (Mr. Sanders
recuses himself from voting on his own compensation); and (iv) reviewing the
CD&A, and recommending to the Board its inclusion in the Partnerships’ Forms
10-K. The Compensation Committee held three meetings in 2006, and approved
the
Special Program on January 26, 2007.
The
Compensation Committee’s year-end process has generally focused on the cash
bonus and deferred awards granted to management. In respect of year-end 2006,
it
has given particular attention to the Special Program and awards thereunder.
Mr.
Sanders plays an active role in the work of the Compensation Committee. Messrs.
Lieberman and Sanders, working with other members of senior management, provide
recommendations of awards to the Compensation Committee for their consideration.
In recent years, management has retained McLagan Associates to assist in
providing industry benchmarking data to the Compensation Committee. The
Compensation Committee has not retained its own consultants.
Mr.
Sanders’s annual compensation is determined pursuant to his employment
agreement, entered into on October 26, 2006 following its approval by the
Compensation Committee. The agreement sets forth minimum amounts of annual
base
salary and of deferred compensation awards based on the firm’s profitability.
The Compensation Committee may award amounts in excess of each minimum; they
did
not do so at year-end 2006. For additional information about Mr. Sanders’s
employment agreement, see
“Other Information regarding Compensation of Named Executive Officers” in this
Item 11.
A
more
complete description of the Compensation Committee’s functions is set forth in
the committee’s charter, which is available online at our Internet site
(http://www.alliancebernstein.com).
Other
Compensation-Related Matters
AllianceBernstein
and Holding are, respectively, private and public limited partnerships, and
are
subject to taxes other than federal and state corporate income tax.
(See
“Business - Taxes” in Item 1.)
Accordingly, Section 162(m) of the Internal Revenue Code, which limits tax
deductions relating to executive compensation otherwise available to entities
taxed as corporations, is not applicable to either AllianceBernstein or Holding.
We
have
amended our qualified and non-qualified plans to the extent necessary to comply
with the requirements of Section 409A of the Internal Revenue Code.
All
compensation awards that involve the issuance of Holding Units are made under
the Amended and Restated 1997 Long Term Incentive Plan (“1997 Plan”), which
Holding Unitholders initially approved in 1997. Holding Unitholders approved
amendments to the 1997 Plan (increasing the number of Holding Units that may
be
issued thereunder, and extending its life) in 2000. No more than 41 million
Holding Units may be awarded under the 1997 Plan. As of December 31, 2006,
29,168,647 Holding Units are available for future awards under the 1997
Plan.
Compensation
Committee Interlocks and Insider Participation
Mr.
Condron is the President and Chief Executive Officer of AXA Equitable, the
sole
stockholder of the General Partner. AXA Equitable and its affiliates own an
aggregate 60% economic interest in AllianceBernstein. Mr. Sanders is Chairman
and Chief Executive Officer of the General Partner, and accordingly also serves
in those positions for AllianceBernstein and Holding. No executive officer
of
AllianceBernstein served as a member of a compensation committee or a director
of another entity, an executive officer of which served as a member of
AllianceBernstein’s Compensation Committee or Board.
Compensation
Committee Report
The
members of the Compensation Committee reviewed and discussed with management
the
Compensation Discussion and Analysis set forth above and, based on such review
and discussion, recommended its inclusion in this Form 10-K.
Christopher
M. Condron (Chair)
|
Lewis
A. Sanders
|
Lorie
A. Slutsky
|
A.W.
(Pete) Smith, Jr.
|
Summary
Compensation Table
The
following table summarizes the total compensation of our named executive
officers as of the end of 2006:
Name
and
Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-
Equity
Incentive
Plan
Compen-
sation
($)
|
Change
in
Pension
Value
and
Nonquali-
fied
Deferred
Compensation
Earnings
($)
|
All
Other
Compen-
sation
($)
|
Total
($)
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
Lewis
A. Sanders
Chairman
& Chief
Executive
Officer
|
2006
|
275,002
|
0
|
0
|
0
|
0
|
0
|
19,501,985
|
19,776,987
|
Gerald
M. Lieberman
President
& Chief
Operating
Officer
|
2006
|
200,000
|
4,050,000
|
0
|
61,192
|
0
|
0
|
6,224,070
|
10,535,262
|
Marilyn
G. Fedak
Executive
Vice
President
|
2006
|
140,769
|
4,000,000
|
0
|
0
|
0
|
0
|
6,123,707
|
10,264,476
|
Sharon
E. Fay
Executive
Vice
President
|
2006
|
150,000
|
3,900,000
|
0
|
0
|
0
|
0
|
6,100,062
|
10,150,062
|
Robert
H. Joseph, Jr.
Senior
Vice President
&
Chief Financial
Officer
|
2006
|
175,000
|
1,050,000
|
0
|
22,947
|
0
|
31,041
|
868,726
|
2,147,714
|
Each
named executive officer received a base salary for 2006 and an annual cash
bonus
at year-end. These amounts are reflected in columns (c) and (d), respectively.
For information about how salary and bonus relate to total compensation,
see
“Compensation Elements for Executive Officers” in this Item 11.
Column
(f) reflects AllianceBernstein’s amortization expense in respect of the vesting
of prior years’ option grants based on the value of those grants on the grant
date. For additional information, see
Note 16 to AllianceBernstein’s consolidated financial statements in Item
8.
Column
(h) reflects the change in pension value for Mr. Joseph, the only named
executive officer who participates in the Amended and Restated Retirement Plan
for Employees of AllianceBernstein L.P. (“Retirement Plan”).
Column
(i) reflects awards under the Partners Plan, Mr. Sanders’s deferred award under
his employment agreement, and other items. We report Partners Plan awards and
Mr. Sanders’s award under column (i) because of their nature. They are designed
to provide incentives to recipients, but they cannot be categorized as having
been granted under an “incentive plan” under relevant SEC rules because there
are no company performance measures that must be met before a participant may
receive his or her award. Also, as noted above, any allocation of awards by
recipients to equity of the firm is voluntary; we do not unilaterally grant
Holding Units. In addition, awards under the Partners Plan are not accounted
for
under SFAS No. 123-R.
During
2006, we owned fractional interests in two aircraft with an aggregate operating
cost of $3,277,654 (including $1,175,531 in
maintenance fees, $1,440,963 in usage fees, and $661,160 of amortization based
on the original cost of our fractional interests, less estimated residual
value). The unamortized value of the fractional interests as of December 31,
2006 was $10,633,385.
Our
interests in aircraft facilitate business travel of members of our management
executive committee. In 2006, we also permitted our Chief Executive Officer,
our
President, and our former Vice Chairman to use the aircraft for personal travel.
Overall, personal travel constituted approximately 38.1% of our actual use
of
the aircraft in 2006.
Our
methodology for determining the reported value of personal use of aircraft
includes fees paid to the managers of the aircraft (fees take into account
the
aircraft type and weight, number of miles flown, flight time, number of
passengers, and a variable fee), but excludes our fixed costs (amortization
of
original cost less estimated residual value, and monthly maintenance fees).
We
included such amounts in column (i).
We
use
the Standard Industry Fare Level (“SIFL”) methodology to calculate the amount to
include in the taxable income of executives for the personal use of
company-owned aircraft. Using this methodology, which was approved by our
Compensation Committee, limits our ability to deduct the full cost of personal
use of company-owned aircraft by our executive officers. Taxable income for
the
twelve months ended October 31, 2006 for personal use imputed to Mr. Sanders
is
$66,368 and to Mr. Lieberman is $12,958. Ms. Fedak, Ms. Fay, and Mr. Joseph
did
not make personal use of company-owned aircraft during those 12 months, so
no
income was imputed to them.
Column
(i) also includes the aggregate incremental cost to our company of certain
other expenses and perquisites, including cars, drivers, contributions to the
Profit Sharing Plan, life insurance premiums, disability pay, non-U.S. living
expenses, tax equalization payments, business club dues, and parking, as
applicable.
For
2006,
column (i) includes:
for
Mr.
Sanders, $19,012,000 for his 2006 annual award under his employment agreement,
$303,935 for personal use of aircraft, $162,862 for personal use of a car
(including lease costs ($38,146), driver salary ($103,339), and other
car-related costs ($21,377) such as parking, gas, tolls, and repairs and
maintenance), a $22,000 contribution to the Profit Sharing Plan, and $1,188
of
life insurance premiums.
for
Mr.
Lieberman, $6,050,000 for his 2006 Partners Plan award, $11,234 for personal
use
of aircraft, $142,836 for personal use of a car (including lease costs
($27,355), driver salary ($97,719), and other car-related costs ($17,762) such
as parking, gas, tolls, and repairs and maintenance), and a $20,000 contribution
to the Profit Sharing Plan.
for
Ms.
Fedak, $6,100,000 for her 2006 Partners Plan award, $8,755 of sick-pay and
short-term disability pay, and a $14,952 contribution to the Profit Sharing
Plan.
for
Ms.
Fay, $5,700,000 for her 2006 Partners Plan award, $199,303 for London living
expenses, $185,579 in tax equalization payments to compensate for U.K.-based
taxes, a $15,000 contribution to the Profit Sharing Plan, and $180 of life
insurance premiums.
for
Mr.
Joseph, $825,000 for his 2006 Partners Plan award, $13,869 for personal use
of a
car (including lease costs ($6,516) and other car-related costs ($7,353) such
as
parking, gas, tolls, and repairs and maintenance), $8,100 in business club
dues,
a $17,500 contribution to the Profit Sharing Plan, and $4,257 of life insurance
premiums.
Grant
of Plan-based Awards
We
have
not granted Holding Units or options to buy Holding Units to the named executive
officers for a number of years, and the Partners Plan cannot be categorized
as
an “incentive plan” under relevant SEC rules. Accordingly, we made no grants of
plan-based awards to the named executive officers in 2006, and we have omitted
the related table.
Outstanding
Equity Awards at Fiscal Year-End
The
following table describes any outstanding equity awards as of December 31,
2006
of our named executive officers, if any:
|
Option
Awards
|
Stock
Awards
|
Name
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
(#)
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
(#)
|
Equity
Incentive
Plan
Awards:
Market
or
Payout
Value
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
($)
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
Lewis
A. Sanders
|
0
|
0
|
0
|
n/a
|
n/a
|
0
|
0
|
0
|
0
|
Gerald
M. Lieberman
|
32,000
40,000
|
8,000
0
|
0
0
|
33.18
50.25
|
12/06/12
12/07/11
|
0
0
|
0
0
|
0
0
|
0
0
|
Marilyn
G. Fedak
|
0
|
0
|
0
|
n/a
|
n/a
|
0
|
0
|
0
|
0
|
Sharon
E. Fay
|
0
|
0
|
0
|
n/a
|
n/a
|
0
|
0
|
0
|
0
|
Robert
H. Joseph, Jr.
|
12,000
15,000
15,000
50,000
15,000
20,000
|
3,000
0
0
0
0
0
|
0
0
0
0
0
0
|
33.18
50.25
53.75
48.50
30.25
26.31
|
12/06/12
12/07/11
12/11/10
06/20/10
12/06/09
12/10/08
|
0
0
0
0
0
0
|
0
0
0
0
0
0
|
0
0
0
0
0
0
|
0
0
0
0
0
0
|
Of
the
named executive officers, only Messrs. Lieberman and Joseph have been granted
options to buy Holding Units. No named executive officer has been awarded
Holding Units. The unexercisable options shown in column (c) vest in December
2007.
Option
Exercises and Stock Vested
The
following table describes all option exercises and stock vesting of our named
executive officers during 2006, if any:
|
Option
Awards
|
Stock
Awards
|
Name
|
Number
of Shares
Acquired
on Exercise
(#)
|
Value
Realized
on
Exercise
($)
|
Number
of Shares
Acquired
on Vesting
(#)
|
Value
Realized
on
Vesting
($)
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
Lewis
A. Sanders
|
0
|
0
|
0
|
0
|
Gerald
M. Lieberman
|
0
|
0
|
0
|
0
|
Marilyn
G. Fedak
|
0
|
0
|
0
|
0
|
Sharon
E. Fay
|
0
|
0
|
0
|
0
|
Robert
H. Joseph, Jr.
|
40,000
|
2,247,332
|
0
|
0
|
Column
(c) reflects the pre-tax amount of proceeds, net of payment of exercise
price.
Pension
Benefits
The
following table describes the accumulated benefit under our company pension
plan
belonging to each of our named executive officers as of December 31, 2006,
if
any:
Name
|
Plan
Name
|
Number
of
Years
Credited
Service (#)
|
Present
Value of
Accumulated
Benefit
($)
|
Payments
During
Last
Fiscal
Year ($)
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
Lewis
A. Sanders
|
n/a
|
0
|
0
|
0
|
Gerald
M. Lieberman
|
n/a
|
0
|
0
|
0
|
Marilyn
G. Fedak
|
n/a
|
0
|
0
|
0
|
Sharon
E. Fay
|
n/a
|
0
|
0
|
0
|
Robert
H. Joseph, Jr.
|
Retirement
Plan for Employees of AllianceBernstein L.P.
|
22
|
407,866
|
0
|
Of
the
named executive officers, only Mr. Joseph, who was an employee of Alliance
Capital Management L.P. prior to the Bernstein Transaction, participates in
the
Retirement Plan and continues to accrue benefits thereunder. This plan is a
qualified, noncontributory, defined benefit retirement plan covering current
and
former employees who were employed in the United States prior to October 2,
2000. 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 $100,000
or
100% of a participant’s average aggregate compensation for the three consecutive
years in which he or she received the highest aggregate compensation from us
or
such lower limit as may be imposed by the Internal Revenue Code on certain
participants by reason of their coverage under another qualified retirement
plan
we maintain. A participant is fully vested after the completion of five years
of
service. The plan generally provides for payments to, or on behalf of, each
vested employee upon such employee’s retirement at the normal retirement age
provided under the plan or later, although provision is made for payment of
early retirement benefits on an actuarially reduced basis. Normal retirement
age
under the plan is 65. Death benefits are payable to the surviving spouse of
an
employee who dies with a vested benefit under the plan.
For
additional information regarding interest rates and actuarial assumptions,
see
Note 14 to AllianceBernstein’s consolidated financial statements in Item
8.
Non-Qualified
Deferred Compensation
The
following table describes our named executive officers’ non-qualified deferred
compensation contributions, earnings, and distributions during 2006 and their
non-qualified deferred compensation plan balances as of December 31,
2006:
Name
|
Executive
Contributions
in
Last
FY ($)
|
Registrant
Contributions
in
Last
FY ($)
|
Aggregate
Earnings
in
Last FY
($)
|
Aggregate
Withdrawals/
Distributions
($)
|
Aggregate
Balance
at
Last FYE ($)
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
Lewis
A. Sanders
|
0
|
19,012,000
|
3,915,884
|
(14,426,335)
|
35,706,588
|
Gerald
M. Lieberman
|
0
|
6,050,000
|
3,072,864
|
(5,467,209)
|
21,383,790
|
Marilyn
G. Fedak
|
0
|
6,100,000
|
3,487,064
|
0
|
21,700,465
|
Sharon
E. Fay
|
0
|
5,700,000
|
1,502,762
|
(5,289,529)
|
13,264,093
|
Robert
H. Joseph, Jr.
|
0
|
825,000
|
1,959,200
|
(499,494)
|
8,692,037
|
For
each
named executive officer other than Mr. Joseph, the amounts shown reflect the
aggregate of the officer’s interest in both the SCB Deferred Compensation Award
Plan (“SCB Deferred Plan”), under which the last awards were permitted to be
made in 2003, and the Partners Plan (and, for Mr. Sanders, awards under his
employment agreement and his former employment agreement). Amounts shown for
Mr.
Joseph reflect the Partners Plan and a de minimis amount in respect of the
annual elective deferral plan (a non-qualified deferred compensation plan
pursuant to which participants could elect to defer a portion of their 2000
and
2001 annual cash bonus or commission and invest it in Holding Units). For
information about the SCB Deferred Plan, the Partners Plan, and Mr. Sanders’s
employment agreement, see
Note 15 to AllianceBernstein’s consolidated financial statements in Item
8.
Amounts
in column (c) are also included in column (i) of the Summary Compensation Table.
For individuals with notional investments in Holding Units, amounts of
distributions on such Holding Units are reflected as earnings in column (d)
and,
to the extent distributed to the named executive officer, reflected as
distributions in column (e).
Column
(f) includes the value of all notional investments as of the close of business
on December 31, 2006. As of that date, Mr. Lieberman notionally held
approximately 55,619 Holding Units in the Partners Plan, Ms. Fay notionally
held
approximately 13,097 Holding Units in the SCB Deferred Plan, and Mr. Joseph
notionally held approximately 57,946 Holding Units in the Partners
Plan.
Other
Information regarding Compensation of Named Executive
Officers
There
are
no amounts payable to any of the named executive officers upon a change in
control of the company.
On
October 26, 2006, Lewis A. Sanders and AllianceBernstein entered into an
employment agreement pursuant to which Mr. Sanders shall serve as Chairman
and Chief Executive Officer of the General Partner through December 31,
2011 (“Employment Term”) unless the agreement is terminated in accordance with
its terms. Mr. Sanders will be paid a minimum base salary of $275,000 per
year during the Employment Term and, for calendar year 2006 and each subsequent
calendar year during the Employment Term, he is entitled to receive a deferred
compensation award of not less than one percent (1%) of AllianceBernstein’s
consolidated operating income before incentive compensation (as defined with
respect to the calculation of AllianceBernstein’s bonus pool) for such calendar
year. Mr. Sanders is entitled to perquisites on the same terms as other
senior executives through the Employment Term, including personal use of
aircraft and a car and driver (our President is the only other officer entitled
to personal use of aircraft and a car and driver).
Mr.
Sanders may receive payments upon termination pursuant to his employment
agreement. During any year in which we terminate Mr. Sanders without “cause” (as
defined below), he is entitled to (i) his annual base salary for that year,
(ii)
the deferred compensation award described above calculated as of his termination
date, (iii) all unvested deferred compensation awards, (iv) health and welfare
benefits for Mr. Sanders, his spouse, and his dependents through the end of
that
year, (v) if the termination occurs prior to December 31, 2007, a cash payment
equal to $20,000 times the number of plan years for which Mr. Sanders will
not
receive a company contribution under the Profit Sharing Plan, and (vi) if the
termination occurs prior to December 31, 2007, the continued receipt of
perquisites, reimbursements, and support described above through the end of
that
year. The above elements, assuming 2006 costs, would have resulted in a payment
to Mr. Sanders of approximately $36.5 million had he been terminated without
cause as of January 1, 2007.
During
any year in which Mr. Sanders is terminated for “cause”, he is entitled to (i)
the pro rata portion of his annual salary for that year for services rendered
to
the date of termination, to the extent not previously paid, and (ii) all
deferred compensation awards described above that have vested prior to such
termination. Mr. Sanders would be entitled to no other payments or benefits
under the agreement, which defines “cause” as Mr. Sanders’s (i) willful failure
to perform his duties, (ii) engaging in conduct found by a court to (A)
constitute employment disqualification or a felony and which is materially
and
demonstrably injurious to our business or reputation, or (B) materially violate
federal or state securities laws, (iii) absent the finding in clause (ii) above,
a good faith determination by the Board that conduct by Mr. Sanders constitutes
such a disqualification, felony or violation, and that his continued employment
would be materially and demonstrably injurious to our business or reputation,
or
(iv) breach of the confidentiality or non-competition covenants contained in
the
agreement, which breach is material to our business.
Director
Compensation
The
following table describes how we compensated our independent directors during
2006:
Name
|
Fees
Earned
or
Paid in
Cash ($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Change
in Pension
Value
and
Nonqualified Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
Weston
M. Hicks
|
58,000
|
30,000
|
30,000
|
0
|
0
|
0
|
118,000
|
W.
Edwin Jarmain
|
16,000
|
0
|
0
|
0
|
0
|
0
|
16,000
|
Lorie
A. Slutsky
|
68,500
|
30,000
|
30,000
|
0
|
0
|
0
|
128,500
|
A.W.
(Pete) Smith, Jr.
|
62,500
|
30,000
|
30,000
|
0
|
0
|
0
|
122,500
|
Peter
J. Tobin
|
88,000
|
30,000
|
30,000
|
0
|
0
|
0
|
148,000
|
The
General Partner only pays fees, and makes equity awards to, directors who are
not employed by our company or by any of our affiliates. Such fees and awards
consist of:
|
|
an
annual retainer of $40,000 (paid quarterly after any quarter during
which
a director serves on the Board, which is why Mr. Jarmain, who resigned
from the Board effective February 25, 2006, received less than $40,000
in
2006);
|
|
|
a
fee of $1,500 for participating in a meeting of the Board, or any
duly
constituted committee of the Board, whether he or she participates
in
person or by telephone;
|
|
·
|
an
annual retainer of $15,000 for acting as Chair of the Audit
Committee;
|
|
|
an
annual retainer of $7,500 for acting as Chair of the Corporate Governance
Committee; and
|
|
|
an
annual equity-based grant under the 1997 Plan consisting
of:
|
|
|
restricted
Holding Units having a value of $30,000 based on the closing price
of
Holding Units on the NYSE as of the grant date;
and
|
|
|
options
to buy Holding Units with a value of $30,000 calculated using the
Black-Scholes method.
|
On
May 15, 2006, at a regularly scheduled meeting of the Board, 462 restricted
Holding Units and options to buy 2,428 Holding Units at $65.02 per Unit were
granted to Ms. Slutsky, and to Messrs. Hicks, Smith, and Tobin. Such grants
have
generally been made at the May meeting of the Board. The date of the meeting
was
set at a Board meeting in 2005. The exercise price of the options was the
closing price on the NYSE on the grant date. Due to rounding, directors received
slightly more than the value of the grant (but in no case greater than
approximately $12.35, the Black-Scholes value of each option, in respect of
the
option grant, or $65.02, the price of the Holding Unit, for the grant of
restricted Holding Units). For information about how the Black-Scholes value
was
calculated, see
Note 16 to AllianceBernstein’s consolidated financial statements in Item
8.
Options
granted to independent directors vest ratably over three years. Restricted
Holding Units granted to independent directors vest after three years. In order
to avoid any perception that our directors’ independence might be impaired,
these options and restricted Holding Units are not forfeitable. Vesting of
options continues following a director’s resignation from the Board. Restricted
Holding Units vest and are distributed immediately following an independent
director’s resignation from the Board.
The
General Partner may reimburse any director for reasonable expenses incurred
in
participating in Board meetings. Holding and AllianceBernstein, in turn,
reimburse the General Partner for expenses incurred by the General Partner
on
their behalf, including amounts in respect of directors’ fees and expenses.
These reimbursements are subject to any relevant provisions of the Holding
Partnership Agreement and AllianceBernstein Partnership Agreement.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
Securities
Authorized for Issuance under Equity Compensation Plans
The
following table summarizes the Holding Units to be issued pursuant to our equity
compensation plans as of December 31, 2006:
Equity
Compensation Plan Information(1)
Plan Category
|
|
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a)
|
|
Weighted average
exercise price of
outstanding options,
warrants and rights
(b)
|
|
Number of securities
remaining available for
future issuance
(c)
|
|
Equity
compensation plans approved by security holders
|
|
|
4,819,099
|
|
$
|
41.62
|
|
|
29,168,647
|
|
Equity
compensation plans not approved by security holders
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
|
4,819,099
|
|
$
|
41.62
|
|
|
29,168,647
|
|
____________
(1)
|
The
figures in this table do not include cash awards under certain of
AllianceBernstein’s deferred compensation plans pursuant to which
employees (including those employees who qualify as “named executive
officers”; see
Item 11)
may choose to notionally invest a portion of such awards in Holding
Units. AllianceBernstein satisfies its obligations under these plans
by
purchasing Holding Units rather than issuing new Holding Units. For
additional information concerning such plans, see
Note 15 to AllianceBernstein’s consolidated financial statements in
Item 8.
|
There
are
no AllianceBernstein Units to be issued pursuant to an equity compensation
plan.
For
information about our equity compensation plans (1993 Unit Option Plan, 1997
Long Term Incentive Plan, Century Club Plan), see
Note 16 to AllianceBernstein’s consolidated financial statements in Item
8.
Principal
Security Holders
As
of
January 31, 2007, we had no information that any person beneficially owned
more
than 5% of the outstanding Holding Units.
As
of
January 31, 2007, we had no information that any person beneficially owned
more
than 5% of the outstanding AllianceBernstein Units except (i) AXA and
certain of its wholly-owned subsidiaries as reported on Forms 4 filed with
the
SEC on December 11, 2006 pursuant to the Exchange Act, (ii) AXA and certain
of
its wholly-owned subsidiaries as reported on Schedule 13D/A filed with the
SEC on December 23, 2004 pursuant to the Exchange Act, and
(iii) SCB Inc. and SCB Partners Inc. (SCB Partners Inc. is a
wholly-owned subsidiary of SCB Inc.) as reported on Schedule 13D/A
filed with the SEC on December 23, 2004 pursuant to the Exchange
Act.
The
table
below and the notes following it have been prepared in reliance upon such
filings for the nature of ownership and an explanation of overlapping
ownership.
On
February 23, 2007, SCB Partners sold to AXA Financial 8,160,000
AllianceBernstein Units pursuant to an agreement (see
Note 6 below)
entered
into in connection with the Bernstein Transaction; the beneficial ownership
of
AllianceBernstein Units discussed in the table below does not reflect this
sale.
Name and Address of
Beneficial Owner
|
|
Amount and Nature of Beneficial
Ownership Reported on Schedule
|
|
Percent of Class
|
|
AXA(1)(2)(3)(4)(6)
25
avenue Matignon 75008 Paris, France
|
|
|
153,581,609
|
|
|
59.2
|
%
|
SCB
Inc.,(5)(6) SCB
Partners Inc.(5)(6)
50
Main Street, Suite 1000, White Plains, NY 10606
|
|
|
16,320,000
|
|
|
6.3
|
%
|
____________
(1)
|
Based
on information provided by AXA Financial, on December 31, 2006, AXA
and certain of its subsidiaries beneficially owned all of AXA Financial’s
outstanding common stock. For insurance regulatory purposes the shares
of
capital stock of AXA Financial beneficially owned by AXA and its
subsidiaries have been deposited into a voting trust (“Voting Trust”), the
term of which has been extended until May 12, 2012. The trustees of
the Voting Trust (the “Voting Trustees”) are Claude Bébéar, Henri de
Castries and Denis Duverne, each of whom serves either on the Management
Board or on the Supervisory Board of AXA. 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 minority
shareholders of AXA do not exercise control over AXA Financial or
certain
of its insurance subsidiaries.
|
(2)
|
Based
on information provided by AXA, as of December 31, 2006, 14.26% of
the
issued ordinary shares (representing 20.65% of the voting power)
of AXA
were owned directly and indirectly by three French mutual insurance
companies (the “Mutuelles AXA”).
|
(3)
|
The
Voting Trustees and the Mutuelles AXA, as a group, may be deemed
to be
beneficial owners of all AllianceBernstein Units beneficially owned
by AXA
and its subsidiaries. By virtue of the provisions of the Voting Trust
Agreement, AXA may be deemed to have shared voting power with respect
to
the AllianceBernstein Units. AXA and its subsidiaries have the power
to
dispose or direct the disposition of all shares of the capital stock
of
AXA Financial deposited in the Voting Trust. The Mutuelles AXA, as
a
group, 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 AllianceBernstein
Units
beneficially owned by AXA and its subsidiaries. The address of each
of AXA
and the Voting Trustees is 25 avenue Matignon, 75008 Paris, France.
The
address of the Mutuelles AXA is 26, rue Drouot, 75009 Paris,
France.
|
(4)
|
By
reason of their relationships, AXA, the Voting Trustees, the Mutuelles
AXA, AXA Financial, AXA Equitable, ACMC Inc., and ECMC, LLC may be
deemed
to share the power to vote or to direct the vote and to dispose or
direct
the disposition of all or a portion of the 153,581,609 AllianceBernstein
Units.
|
(5)
|
SCB
Partners Inc. is a wholly-owned subsidiary of SCB Inc.
Mr. Sanders is a Director and the Chairman and Chief Executive
Officer of SCB Inc., and is the owner of a 22.13% equity interest in
SCB Inc. Mr. Lieberman is a Director and the Senior Vice
President—Finance and Administration of SCB Inc., and is the owner of
a less than 1% equity interest in SCB Inc. Ms. Fedak is
a Director and Senior Vice President of SCB Inc., and is the owner
of a
2.67% equity interest in SCB Inc. Ms. Fay is the owner of a less than
1% equity interest in SCB Inc. Mr. Sanders,
Mr. Lieberman, Ms. Fedak, and Ms. Fay disclaim beneficial
ownership of the 16,320,000 AllianceBernstein Units owned by SCB
Partners Inc., except to the extent of their pecuniary interests
therein. For additional information about these pecuniary interests,
see
“Management” in this Item 12.
|
(6)
|
In
connection with the Bernstein Transaction, SCB Inc.,
AllianceBernstein and AXA Financial entered into a purchase agreement
under which SCB Inc. has the right to sell or assign up to 2,800,000
AllianceBernstein Units issued in connection with the Bernstein
Transaction at any time. SCB Inc. has the right to sell (“Put”) to
AXA Financial or its designee up to 8,160,000 AllianceBernstein Units
issued in connection with the Bernstein Transaction each year less
any
AllianceBernstein Units SCB Inc. may have otherwise sold or assigned
that year. The Put rights expire on October 2, 2010. Generally,
SCB Inc. may exercise its Put rights only once per year and
SCB Inc. may not deliver an exercise notice regarding its Put rights
until at least nine months after it delivered its immediately preceding
exercise notice. On each of November 25, 2002, March 5, 2004,
December 21, 2004, and February 23, 2007, AXA Financial or certain of
its wholly-owned subsidiaries purchased 8,160,000 AllianceBernstein
Units
from SCB Partners Inc., a wholly-owned subsidiary of SCB Inc.
pursuant to exercises of the Put rights by
SCB Inc.
|
As
of
January 31, 2007, Holding was the record owner of 85,919,404, or 33.1%, of
the
issued and outstanding AllianceBernstein Units.
Management
The
following table sets forth, as of January 31, 2007, the beneficial ownership
of
Holding Units by each director and named executive officer of the General
Partner and by all directors and executive officers as a group:
Name of Beneficial Owner
|
|
Number of
Holding
Units
and Nature of
Beneficial Ownership
|
|
Percent of Class
|
|
Lewis
A. Sanders(1)
|
|
|
0
|
|
|
*
|
|
Dominique
Carrel-Billiard(1)
|
|
|
0
|
|
|
*
|
|
Henri
de Castries(1)
|
|
|
2,000
|
|
|
*
|
|
Christopher
M. Condron(1)
|
|
|
20,000
|
|
|
*
|
|
Denis
Duverne(1)
|
|
|
2,000
|
|
|
*
|
|
Peter
Etzenbach(1)
|
|
|
0
|
|
|
*
|
|
Weston
M. Hicks
|
|
|
462
|
|
|
*
|
|
Gerald
M. Lieberman(1,2)
|
|
|
120,259
|
|
|
*
|
|
Lorie
A. Slutsky(1,3)
|
|
|
16,750
|
|
|
*
|
|
A.W.
(Pete) Smith, Jr.
|
|
|
712
|
|
|
*
|
|
Peter
J. Tobin(1,4)
|
|
|
30,590
|
|
|
*
|
|
Marilyn
G. Fedak(1)
|
|
|
0
|
|
|
*
|
|
Sharon
E. Fay(1)
|
|
|
16,745
|
|
|
*
|
|
Robert
H. Joseph, Jr.(1,5)
|
|
|
152,774
|
|
|
*
|
|
All
directors and executive officers of the General Partner as a group
(30 persons)(6)
|
|
|
2,167,058
|
|
|
2.5
|
%
|
____________
*
|
Number
of Holding Units listed represents less than 1% of the Units
outstanding.
|
(1)
|
Excludes
Holding Units beneficially owned by AXA and its subsidiaries.
Messrs. Carrel-Billiard, de Castries, Condron, Duverne, Etzenbach,
Lieberman, and Tobin, and Ms. Slutsky, are directors and/or officers
of
AXA, AXA Financial, and/or AXA Equitable. Messrs. Sanders, Lieberman,
and Joseph, and Mesdames Fedak and Fay, are directors and/or officers
of
the General Partner.
|
(2)
|
Includes
72,000 Holding Units Mr. Lieberman can acquire within 60 days under
an
AllianceBernstein option plan.
|
(3)
|
Includes
14,217 Holding Units Ms. Slutsky can acquire within 60 days under
an
AllianceBernstein option plan.
|
(4)
|
Includes
29,467 Holding Units Mr. Tobin can acquire within 60 days under an
AllianceBernstein option plan.
|
(5)
|
Includes
127,000 Holding Units Mr. Joseph can acquire within 60 days under
AllianceBernstein option plans.
|
(6)
|
Includes
862,684 Holding Units the directors and executive officers as a group
can
acquire within 60 days under AllianceBernstein option
plans.
|
As
of
January 31, 2007, our directors and executive officers beneficially owned
AllianceBernstein Units only to the extent of their respective indirect
pecuniary interests in 16,320,000 AllianceBernstein Units beneficially owned
by
SCB Partners Inc. Based on their respective equity interests in SCB Inc. and/or
notional interests in the AllianceBernstein Units through an SCB Partners Inc.
profit sharing plan, the individuals named below may be deemed to own
beneficially and indirectly the number of AllianceBernstein Units set forth
opposite their respective names.
On
February 23, 2007, SCB Partners sold to AXA Financial 8,160,000
AllianceBernstein Units pursuant to an agreement (see
Note 6 to “Principal Security Holders” in this Item 12)
entered
into in connection with the Bernstein Transaction; the beneficial ownership
of
AllianceBernstein Units discussed in the table below does not reflect this
sale.
Name of Beneficial Owner
|
|
Number of
AllianceBernstein
Units
and Nature of
Beneficial Ownership
|
|
Percent of Class
|
|
Lewis
A. Sanders
|
|
|
3,199,893
|
|
|
1.2
|
%
|
Gerald
M. Lieberman
|
|
|
92,834
|
|
|
*
|
|
Sharon
E. Fay
|
|
|
50,773
|
|
|
*
|
|
Marilyn
G. Fedak
|
|
|
383,420
|
|
|
*
|
|
Mark
R. Gordon
|
|
|
217,030
|
|
|
*
|
|
Thomas
S. Hexner
|
|
|
166,589
|
|
|
*
|
|
Seth
J. Masters
|
|
|
72,609
|
|
|
*
|
|
Marc
O. Mayer
|
|
|
101,281
|
|
|
*
|
|
Lisa
A. Shalett
|
|
|
10,950
|
|
|
*
|
|
David
A. Steyn
|
|
|
1,825
|
|
|
*
|
|
All
directors and executive officers of the General Partner as a group
(30 persons)
|
|
|
4,297,204
|
|
|
1.7
|
%
|
____________
*
|
Number
of AllianceBernstein Units listed represents less than 1% of the
outstanding AllianceBernstein
Units.
|
The
following table sets forth, as of January 31, 2007, the beneficial ownership
of
the common stock of AXA by each director and named executive officer of the
General Partner and by all directors and executive officers as a
group:
AXA
Common Stock(1)
Name of Beneficial Owner
|
|
Number of Shares and Nature of
Beneficial Ownership
|
|
Percent of Class
|
|
Lewis
A. Sanders
|
|
|
0
|
|
|
*
|
|
Dominique
Carrel-Billiard(2)
|
|
|
33,376
|
|
|
*
|
|
Henri
de Castries(3)
|
|
|
5,807,601
|
|
|
*
|
|
Christopher
M. Condron(4)
|
|
|
3,575,217
|
|
|
*
|
|
Denis
Duverne(5)
|
|
|
1,815,226
|
|
|
*
|
|
Peter
Etzenbach(6)
|
|
|
11,534
|
|
|
*
|
|
Weston
M. Hicks
|
|
|
0
|
|
|
*
|
|
Gerald
M. Lieberman
|
|
|
0
|
|
|
*
|
|
Lorie
A. Slutsky
|
|
|
203
|
|
|
*
|
|
A.W.
(Pete) Smith, Jr.
|
|
|
0
|
|
|
*
|
|
Peter
J. Tobin(7)
|
|
|
7,695
|
|
|
*
|
|
Marilyn
G. Fedak
|
|
|
0
|
|
|
*
|
|
Sharon
E. Fay
|
|
|
0
|
|
|
*
|
|
Robert
H. Joseph, Jr.
|
|
|
0
|
|
|
*
|
|
All
directors and executive officers of the General Partner as a group
(30
persons)(8)
|
|
|
11,250,852
|
|
|
*
|
|
____________
*
|
Number
of shares listed represents less than 1% of the outstanding AXA common
stock.
|
(1)
|
Holdings
of AXA American Depositary Shares (“ADS”) are expressed as their
equivalent in AXA common stock. Each AXA ADS represents the right
to
receive one AXA ordinary share.
|
(2)
|
Includes
30,810 shares Mr. Carrel-Billiard can acquire within 60 days under
option
plans.
|
(3)
|
Includes
4,771,410 shares and 292,308 ADSs Mr. de Castries can acquire within
60
days under option plans.
|
(4)
|
Includes
1,576,208 ADSs Mr. Condron can acquire within 60 days under option
plans.
Also includes 244,293 performance units, which are paid out when
vested
based on the price of ADSs at that time; payout will be 70% in cash
and
30% in ADSs.
|
(5)
|
Includes
1,364,031 shares and 99,932 ADSs Mr. Duverne can acquire within 60
days
under option plans.
|
(6)
|
Includes
6,809 shares Mr. Etzenbach can acquire within 60 days under options
plans.
|
(7)
|
Includes
636 ADSs Mr. Tobin can acquire within 60 days under option plans.
Also
includes 3,540 ADSs Mr. Tobin owns jointly with his
spouse.
|
(8)
|
Includes
6,173,060 shares and 1,969,084 ADSs the directors and executive officers
as a group can acquire within 60 days under option
plans.
|
Partnership
Matters
The
General Partner makes all decisions relating to the management of
AllianceBernstein and Holding. The General Partner has agreed that it will
conduct no business other than managing AllianceBernstein and Holding, although
it may make certain investments for its own account. Conflicts of interest,
however, could arise between AllianceBernstein and Holding, the General Partner
and the Unitholders of
both
Partnerships.
Section 17-403(b) of
the Delaware Revised Uniform Limited Partnership Act (“Delaware Act”) states in
substance that, except as provided in the Delaware Act or the applicable
partnership agreement, a general partner of a limited partnership has the
liabilities of a general partner in a general partnership governed by the
Delaware Uniform Partnership Law (as in effect on July 11, 1999) to the
partnership and to the other partners. Accordingly, while under Delaware law
a
general partner of a limited partnership is liable as a fiduciary to the other
partners, those fiduciary obligations may be altered by the terms of the
applicable partnership agreement. The AllianceBernstein Partnership Agreement
and Holding Partnership Agreement both set forth limitations on the duties
and
liabilities of the General Partner. Each partnership agreement provides that
the
General Partner is not liable for monetary damages 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,
with reckless disregard for the best interests of the Partnerships or with
actual bad faith on the part of the General Partner, or constituted actual
fraud. Whenever the AllianceBernstein Partnership Agreement and the Holding
Partnership Agreement provide 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
Partnerships or any Unitholder of AllianceBernstein or Holding 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 AllianceBernstein Partnership Agreement and the Holding
Partnership Agreement or applicable law or in equity or otherwise. The
partnership agreements further provide to the extent that, at law or in equity,
the General Partner has duties (including fiduciary duties) and liabilities
relating thereto to either Partnership or any partner, the General Partner
acting under the AllianceBernstein Partnership Agreement or the Holding
Partnership Agreement, as applicable, will not be liable to the Partnerships
or
any partner for its good faith reliance on the provisions of the partnership
agreement.
In
addition, the AllianceBernstein Partnership Agreement and the Holding
Partnership Agreement grant broad rights of indemnification to the General
Partner and its directors and affiliates and authorize AllianceBernstein and
Holding to enter into indemnification agreements with the directors, officers,
partners, employees and agents of AllianceBernstein and its affiliates and
Holding and its affiliates. The Partnerships have granted broad rights of
indemnification to officers and employees of AllianceBernstein and Holding.
The
foregoing indemnification provisions are not exclusive, and the Partnerships
are
authorized to enter into additional indemnification arrangements.
AllianceBernstein and Holding have obtained directors and officers/errors and
omissions liability insurance.
The
AllianceBernstein Partnership Agreement and the Holding Partnership Agreement
also allow transactions between AllianceBernstein and Holding 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 AllianceBernstein
or
Holding than) those that would prevail with an unaffiliated party. The
partnership agreements provide 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 AllianceBernstein, and its
subsidiaries or Holding) 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 AllianceBernstein or Holding than) those that would prevail
in
a transaction with an unaffiliated party.
The
AllianceBernstein Partnership Agreement and the Holding Partnership Agreement
expressly permit all affiliates of the General Partner (including AXA Equitable
and its other subsidiaries) to compete, directly or indirectly, with
AllianceBernstein and Holding, to engage in any business or other activity
and
to exploit any opportunity, including those that may be available to
AllianceBernstein and Holding. AXA, AXA Financial, AXA Equitable and certain
of
their subsidiaries currently compete with AllianceBernstein. (See
“Business - Competition” in Item 1.)
The
partnership agreements further provide that, except to the extent that a
decision or action by the General Partner is taken with the specific intent
of
providing an improper benefit to an affiliate of the General Partner to the
detriment of AllianceBernstein or Holding, there is no liability or obligation
with respect to, and no challenge of, decisions or actions of the General
Partner that would otherwise be subject to claims or other challenges as
improperly benefiting affiliates of the General Partner to the detriment of
the
Partnerships or otherwise involving any conflict of interest or breach of a
duty
of loyalty or similar fiduciary obligation.
Section 17-1101(c) of
the Delaware Act provides that it is the policy of the Delaware Act to give
maximum effect to the principle of freedom of contract and to the enforceability
of partnership agreements. Further, Section 17-1101(d) of the Delaware
Act provides in part that to the extent a partner has duties (including
fiduciary duties) and liabilities relating thereto to a limited partnership
or
to another partner, those duties and liabilities may be expanded, restricted,
or
eliminated by provisions in a partnership agreement (provided that a partnership
agreement may not (i) eliminate the implied contractual covenant of good faith
and fair dealing, or (ii) limit or eliminate liability for any act or omission
that constitutes a bad faith violation of the implied covenant of good faith
and
fair dealing). Decisions of the Delaware courts have recognized the right of
parties, under the above provisions of the Delaware Act, to alter by the terms
of a partnership agreement otherwise applicable fiduciary duties and liability
for breach of duties. However, the Delaware Courts have required that a
partnership agreement make clear the intent of the parties to displace otherwise
applicable fiduciary duties (the otherwise applicable fiduciary duties often
being referred to as “default” fiduciary duties). Judicial inquiry into whether
a partnership agreement is sufficiently clear to displace default fiduciary
duties is necessarily fact driven and is made on a case by case basis.
Accordingly, the effectiveness of displacing default fiduciary obligations
and
liabilities of general partners continues to be a developing area of the law
and
it is not certain to what extent the foregoing provisions of the
AllianceBernstein Partnership Agreement and the Holding Partnership Agreement
are enforceable under Delaware law.
Item
13. |
Transactions
with Related Persons, Promoters and Certain Control
Persons
|
Policies
and Procedures Regarding Transactions with Related Persons
Each
of
the Holding Partnership Agreement and the AllianceBernstein Partnership
Agreement expressly permits AXA and its affiliates, which includes AXA Equitable
and its affiliates (collectively, “AXA Affiliates”), to provide services to
AllianceBernstein and Holding if the terms of the transaction are “approved by
the General Partner in good faith as being comparable to (or more favorable
to
each such partnership than) those that would prevail in a transaction with
an
unaffiliated party”. This requirement is “conclusively presumed to be satisfied
as to any transaction or arrangement that (x) in the reasonable and good faith
judgment of the General Partner”, meets that unaffiliated party standard, “or
(y) has been approved by a majority of those directors of the General Partner
who are not also directors, officers or employees of an Affiliate of the General
Partner”.
In
practice, our management pricing committees review investment advisory
agreements with AXA Affiliates, which is the manner in which the General Partner
reaches a judgment regarding the appropriateness of the fees. Other transactions
with AXA Affiliates are submitted to the Audit Committee for their review and
approval; the unanimous consent of the Audit Committee constitutes the consent
of three of four independent directors on the Board. We are not aware of any
transaction during 2006 between our company and any related person with respect
to which these procedures were not followed.
We
do not
have written policies regarding the employment of immediate family members
of
any of our related persons. Compensation and benefits for all of our employees,
including employees who are immediate family members of any of our related
persons, is established in accordance with our employment and compensation
practices applicable to employees with equivalent qualifications and
responsibilities who hold similar positions.
Financial
Arrangements
with AXA Affiliates
The
General Partner has, in its reasonable and good faith judgment (based on its
knowledge of, and inquiry with respect to, comparable arrangements with or
between unaffiliated parties), approved the following arrangements with AXA
Equitable and its affiliates as being comparable to, or more favorable to
AllianceBernstein than, those that would prevail in a transaction with an
unaffiliated party.
The
following tables summarize transactions between AllianceBernstein and related
persons during 2006. The first table summarizes services we provide to related
persons, and the second table summarizes services our related persons provide
to
us:
Parties(1)
|
|
General Description of Relationship
|
|
Amounts Received or
Accrued for in 2006
|
|
EQAT,
AXA Enterprise Trust and AXA Premier VIP Trust
|
|
We
serve as sub-adviser to these open-end mutual funds, each of which
is
sponsored by a subsidiary of AXA Financial.
|
|
$
|
79,376,000
|
|
AXA
Asia Pacific(2)
|
|
We
provide investment management services.
|
|
$
|
39,225,000
|
|
AXA
Equitable(2)
|
|
We
provide investment management services and ancillary accounting,
valuation, reporting, treasury, and other services to the general
and
separate accounts of AXA Equitable and its insurance company
subsidiaries.
|
|
$
|
35,871,000
(of which
$272,000 relates
to the ancillary services)
|
|
MONY
Life Insurance Company and its subsidiaries(2)(3)
|
|
We
provide investment management services and ancillary accounting
services.
|
|
$
|
9,628,000
(of which $150,000 relates to the ancillary services)
|
|
AXA
Group Life Insurance
|
|
We
provide investment management services.
|
|
$
|
7,688,000
|
|
AXA
Sun Life(2)
|
|
We
provide investment management services.
|
|
$
|
3,657,000
|
|
AXA
U.K. Group Pension Scheme
|
|
We
provide investment management services.
|
|
$
|
2,924,000
|
|
AXA
Rosenberg Investment Management
Asia
Pacific(2)
|
|
We
provide investment management services.
|
|
$
|
2,177,000
|
|
AXA
(Canada)(2)
|
|
We
provide investment management services.
|
|
$
|
2,170,000
|
|
AXA
Corporate Solutions(2)
|
|
We
provide investment management services.
|
|
$
|
937,000
|
|
AXA
France(2)
|
|
We
provide investment management services.
|
|
$
|
509,000
|
|
AXA
Reinsurance Company(2)
|
|
We
provide investment management services.
|
|
$
|
487,000
|
|
AXA
Investment Managers Limited(2)
|
|
We
provide investment management services.
|
|
$
|
314,000
|
|
AXA
Foundation, Inc., a subsidiary of AXA Financial
|
|
We
provide investment management services.
|
|
$
|
180,000
|
|
Various
AXA subsidiaries
|
|
We
provide investment management services.
|
|
$
|
235,000
|
|
____________
(1)
|
AllianceBernstein
is a party to each transaction.
|
(2)
|
This
entity is a subsidiary of AXA. AXA is an indirect parent of
AllianceBernstein.
|
(3)
|
Subsidiaries
include MONY Life Insurance Company of America and U.S. Financial
Life
Insurance Company.
|
Parties(1)(2)
|
|
General Description of Relationship
|
|
Amounts Paid or
Accrued for in 2006
|
|
AXA
Advisors
|
|
AXA
Advisors distributes certain of our Retail Products.
|
|
$
|
5,708,000
|
|
AXA
Equitable
|
|
AXA
Equitable provides certain data processing services and related
functions.
|
|
$
|
3,725,000
|
|
AXA
Equitable
|
|
We
are covered by various insurance policies maintained by AXA
Equitable.
|
|
$
|
3,139,000
|
|
AXA
Business Services
|
|
AXA
Business Services provides data processing services and support for
certain investment operations functions.
|
|
$
|
1,060,000
|
|
GIE
Informatique AXA (“GIE”)
|
|
GIE
provides cooperative technology development and procurement services
to us
and to various other subsidiaries of AXA.
|
|
$
|
891,000
|
|
AXA
Advisors
|
|
AXA
Advisors sells shares of our mutual funds under Distribution Services
and
Educational Support agreements.
|
|
$
|
772,000
|
|
AXA
Technology Services India Pvt. Ltd.
|
|
AXA
Technology Services India Pvt. Ltd. provides certain data processing
services and functions.
|
|
$
|
763,000
|
|
____________
(1)
|
AllianceBernstein
is a party to each transaction.
|
(2)
|
Each entity
is a subsidiary of AXA. AXA is an indirect parent of
AllianceBernstein.
|
Additional
Transactions with Related Persons
On
February 1, 2001, AllianceBernstein and AXA Asia Pacific entered into a
Subscription and Shareholders Agreement under which they established two
investment management companies in Australia and New Zealand named
AllianceBernstein Australia Limited and AllianceBernstein New Zealand Limited,
respectively. AXA Asia Pacific and AllianceBernstein each own fifty percent
(50%) of the equity of each company and have equal representation on the boards.
These companies currently manage approximately $49.4 billion in client assets,
and earned $61.1 million in management fees in 2006.
AXA
Advisors was our ninth
largest distributor of U.S. Funds in 2006, for which we paid AXA Advisors sales
concessions on sales of $524 million. Various subsidiaries of AXA distribute
certain of our Non-U.S. Funds, for which such entities received aggregate
distribution payments of approximately $427,000 in 2006.
AXA
Equitable and its affiliates are not obligated to provide funds to us, except
for ACMC Inc.’s and the General Partner’s obligation to fund certain of our
deferred compensation and employee benefit plan obligations. ACMC Inc. and
the
General Partner are obligated, subject to certain limitations, to make capital
contributions to AllianceBernstein in an amount equal to the payments
AllianceBernstein is required to make as deferred compensation under the
employment agreements entered into in connection with AXA Equitable’s 1985
acquisition of Donaldson, Lufkin and Jenrette Securities Corporation (now part
of Credit Suisse First Boston LLC) as well as obligations of AllianceBernstein
to various employees and their beneficiaries under AllianceBernstein’s Capital
Accumulation Plan. In 2006, ACMC Inc. made capital contributions to
AllianceBernstein in the amount of approximately $4.3 million in respect of
these obligations. ACMC Inc.’s obligations to make these contributions are
guaranteed by Equitable
Holdings, LLC (a wholly-owned subsidiary of AXA Equitable), subject to certain
limitations. All tax deductions with respect to these obligations, to the extent
funded by ACMC Inc., the General Partner, or Equitable Holdings, LLC, will
be
allocated to ACMC Inc. or the General Partner.
Arrangements
with Immediate Family Members of Related Persons
Two
of
our executive officers, one of whom is also a director, have immediate family
members whom we employ. We established the compensation and benefits of each
such family member in accordance with our employment and compensation practices
applicable to employees with equivalent qualifications and responsibilities
who
hold similar positions. These employees are three of our 4,914
employees.
Gerald
M.
Lieberman’s daughter, Andrea L. Feldman, is employed in AllianceBernstein
Institutional Investments and received 2006 compensation of $130,000 (salary
and
bonus). Mr. Lieberman’s son-in-law, Jonathan H. Feldman, the spouse of
Andrea L. Feldman, is employed in Retail Services and received 2006 compensation
of $225,000 (salary and bonus). Gerald M. Lieberman is Director of the General
Partner and the President and Chief Operating Officer of
AllianceBernstein.
James
G.
Reilly’s brother, Michael J. Reilly, is a U.S. Large Cap Growth portfolio
manager and received 2006 compensation of $2,617,000 (salary, bonus, and
deferred compensation). James G. Reilly is an Executive Vice President of
AllianceBernstein and our U.S. Large Cap Growth team leader.
|
Principal
Accountant Fees and
Services
|
The
following table presents fees for professional audit services rendered by
PricewaterhouseCoopers LLP (“PwC”) for the audit of AllianceBernstein’s and
Holding’s annual financial statements for 2006, and fees for other services
rendered by PwC ($ in thousands):
|
|
2006
|
|
|
|
Domestic
|
|
International
|
|
Total
|
|
Audit
Fees(1)
|
|
$
|
6,319
|
|
$
|
1,356
|
|
$
|
7,675
|
|
Audit
Related Fees(2)
|
|
|
1,300
|
|
|
782
|
|
|
2,082
|
|
Tax
Fees(3)
|
|
|
1,309
|
|
|
361
|
|
|
1,670
|
|
All
Other Fees(4)
|
|
|
27
|
|
|
30
|
|
|
57
|
|
Total
|
|
$
|
8,955
|
|
$
|
2,529
|
|
$
|
11,484
|
|
____________
(1)
|
Includes
$175,000 in respect of audit services for
Holding.
|
(2)
|
Audit
related fees consist principally of fees for audits of financial
statements of certain employee benefit plans, internal control reviews,
and accounting consultation.
|
(3)
|
Tax
fees consist of fees for tax consultation and tax compliance
services.
|
(4)
|
All
other fees in 2006 consisted of miscellaneous non-audit
services.
|
The
following table presents fees for professional audit services rendered by KPMG
LLP for the audit of AllianceBernstein’s and Holding’s annual financial
statements for 2005, and fees for other services rendered by KPMG LLP ($ in
thousands):
|
|
2005
|
|
|
|
Domestic
|
|
International
|
|
Total
|
|
Audit
Fees(1)
|
|
$
|
6,222
|
|
$
|
1,051
|
|
$
|
7,273
|
|
Audit
Related Fees(2)
|
|
|
712
|
|
|
588
|
|
|
1,300
|
|
Tax
Fees(3)
|
|
|
524
|
|
|
326
|
|
|
850
|
|
All
Other Fees(4)
|
|
|
6
|
|
|
—
|
|
|
6
|
|
Total
|
|
$
|
7,464
|
|
$
|
1,965
|
|
$
|
9,429
|
|
____________
(1)
|
Includes
$127,000 in respect of audit services for
Holding.
|
(2)
|
Audit
related fees consist principally of fees for audits of financial
statements of certain employee benefit plans, Sarbanes-Oxley
Section 404 documentation assistance and internal control
reviews.
|
(3)
|
Tax
fees consist of fees for tax consultation and tax compliance
services.
|
(4)
|
All
other fees consisted of miscellaneous non-audit
services.
|
On
November 9, 2005, the Audit Committee adopted a policy to pre-approve audit
and
non-audit service engagements with the independent registered public accounting
firm. This policy was revised on August 3, 2006. The independent registered
public accounting firm is to provide annually a comprehensive and detailed
schedule of each proposed audit and non-audit service to be performed. The
Audit
Committee then affirmatively indicates its approval of the listed engagements.
Engagements that are not listed, but that are of similar scope and size to
those
listed and approved, may be deemed to be approved, if the fee for such service
is less than $100,000. In
addition, the Audit Committee has delegated to its chairman the ability to
approve any permissible non-audit engagement where the fees are expected to
be
less than $100,000.
PART IV
|
Exhibits,
Financial Statement
Schedules
|
(a)
|
There
is no document filed as part of this
Form 10-K.
|
Financial
Statement Schedules.
Attached
to this Form 10-K is a schedule describing Valuation and Qualifying
Account-Allowance for Doubtful Accounts for the three years ended
December 31, 2006, 2005, and 2004. PwC’s report regarding the 2006 schedule
and KPMG LLP’s report regarding the 2005 and 2004 schedules are also
attached.
The
following exhibits required to be filed by Item 601 of Regulation S-K are
filed herewith or incorporated by reference herein, as indicated:
Exhibit
|
Description
|
2.01
|
|
Agreement
between Federated Investors, Inc. and Alliance Capital Management
L.P. dated as of October 28, 2004 (incorporated by reference to
Exhibit 2.1 to Form 10-Q for the quarterly period ended
September 30, 2004, as filed November 8,
2004).
|
|
|
|
2.02
|
|
Acquisition
Agreement dated as of June 20, 2000 and Amended and Restated as of
October 2, 2000 among Alliance Capital Management L.P., Alliance
Capital Management Holding L.P., Alliance Capital Management LLC,
SCB
Inc., Bernstein Technologies Inc., SCB Partners Inc., Sanford C.
Bernstein & Co., LLC and SCB LLC (incorporated by reference to
Exhibit 2.1 to Form 10-K for the fiscal year ended
December 31, 2000, as filed April 2, 2001).
|
|
|
|
3.01
|
|
Amended
and Restated Certificate of Limited Partnership dated February 24,
2006 of
Holding (incorporated by reference to Exhibit 99.06 to Form 8-K,
as filed
February 24, 2006).
|
|
|
|
3.02
|
|
Amendment
No. 1 dated February 24, 2006 to Amended and Restated Agreement of
Limited
Partnership of Holding (incorporated by reference to Exhibit 3.1
to Form
10-Q for the quarterly period ended September 30, 2006, as filed
November
8, 2006).
|
|
|
|
3.03
|
|
Amended
and Restated Agreement of Limited Partnership dated October 29, 1999
of Alliance Capital Management Holding L.P. (incorporated by reference
to
Exhibit 3.2 to Form 10-K for the fiscal year ended
December 31, 2003, as filed March 10, 2004).
|
|
|
|
3.04
|
|
Amended
and Restated Certificate of Limited Partnership dated February 24,
2006 of
AllianceBernstein (incorporated by reference to Exhibit 99.07 to
Form 8-K,
as filed February 24, 2006).
|
|
|
|
3.05
|
|
Amendment
No. 1 dated February 24, 2006 to Amended and Restated Agreement of
Limited
Partnership of AllianceBernstein (incorporated by reference to Exhibit
3.2
to Form 10-Q for the quarterly period ended September 30, 2006, as
filed
November 8, 2006).
|
|
|
|
3.06
|
|
Amended
and Restated Agreement of Limited Partnership dated October 29, 1999
of Alliance Capital Management L.P. (incorporated by reference to
Exhibit 3.3 to Form 10-K for the fiscal year ended
December 31, 2003, as filed March 10, 2004).
|
|
|
|
3.07
|
|
Certificate
of Amendment to the Certificate of Incorporation of AllianceBernstein
Corporation (incorporated by reference to Exhibit 99.08 to Form 8-K,
as
filed February 24, 2006).
|
|
|
|
3.08
|
|
AllianceBernstein
Corporation By-Laws with amendments through February 24, 2006
(incorporated by reference to Exhibit 99.09 to Form 8-K, as
filed February 24, 2006).
|
|
|
|
|
|
Amended
and Restated AllianceBernstein Partners Compensation
Plan.
|
|
|
|
|
|
Amended
and Restated 1997 Long Term Incentive
Plan.
|
|
|
Form
of Award Agreement under the Amended and Restated AllianceBernstein
Partners Compensation Plan.
|
|
|
|
|
|
Forms
of Award Agreement under the Special Option Program.
|
|
|
|
|
|
Form
of Award Agreement under the AllianceBernstein Commission Substitution
Plan.
|
|
|
|
|
|
Form
of Award Agreement under the AllianceBernstein L.P. Financial Advisor
Wealth Accumulation Plan.
|
|
|
|
|
|
Amendment
and Restatement of the Profit Sharing Plan for Employees of
AllianceBernstein L.P., as amended through November 30,
2006.
|
|
|
|
|
|
Amendment
and Restatement of the Retirement Plan for Employees of AllianceBernstein
L.P., as amended through November 30, 2006.
|
|
|
|
|
|
Guidelines
for Transfer of AllianceBernstein L.P. Units and AllianceBernstein
L.P.
Policy Regarding Partners’ Requests for Consent to Transfer of Limited
Partnership Interests to Third Parties.
|
|
|
|
10.10
|
|
Letter
Agreement entered into by Lewis A. Sanders and AllianceBernstein
L.P. on
October 26, 2006 (incorporated by reference to Exhibit 99.31 to
Form 8-K, as filed October 31, 2006).
|
|
|
|
10.11
|
|
Amended
and Restated Commercial Paper Dealer Agreement, dated as of May 3,
2006
(incorporated by reference to Exhibit 10.1 to Form 10-Q for the
quarterly period ended March 31, 2006, as filed May 8,
2006).
|
|
|
|
10.12
|
|
Amended
and Restated Issuing and Paying Agency Agreement, dated as of May
3, 2006
(incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarterly
period ended March 31, 2006, as filed May 8, 2006).
|
|
|
|
10.13
|
|
Revolving
Credit Facility dated as of February 17, 2006 among AllianceBernstein,
as
Borrower, Bank of America, N.A., as Administrative Agent, Banc of
America
Securities LLC, as Arranger, Citibank N.A. and The Bank of New York,
as
Co-Syndication Agents, Deutsche Bank Securities Inc. and JPMorgan
Chase
Bank, N.A., as Co-Documentation Agents, and The Various Financial
Institutions Whose Names Appear on the Signature Pages as “Banks”
(incorporated by reference to Exhibit 10.1 to Form 10-K for the fiscal
year ended December 31, 2005, as filed February 24,
2006).
|
|
|
|
10.14
|
|
AllianceBernstein
Commission Substitution Plan, as amended and restated as of January
1,
2005 (incorporated by reference to Exhibit 10.5 to Form 10-K for
the
fiscal year ended December 31, 2005, as filed February 24,
2006).
|
|
|
|
10.15
|
|
AllianceBernstein
L.P. Financial Advisor Wealth Accumulation Plan effective August
1, 2005
(incorporated by reference to Exhibit 99.3 to Form S-8, as filed
August 5,
2005).
|
|
|
|
10.16
|
|
Investment
Advisory and Management Agreement for MONY Life (incorporated by
reference
to Exhibit 10.4 to Form 10-K for the fiscal year ended December 31,
2004,
as filed March 15, 2005).
|
|
|
|
10.17
|
|
Investment
Advisory and Management Agreement for the General Account of AXA
Equitable
(incorporated by reference to Exhibit 10.5 to Form 10-K for the fiscal
year ended December 31, 2004, as filed March 15, 2005).
|
|
|
|
10.18
|
|
Summary
of AllianceBernstein L.P.’s Lease at 1345 Avenue of the Americas, New
York, New York 10105 (incorporated by reference to Exhibit 10.3 to
Form 10-K for the fiscal year ended December 31, 2003, as filed
March 10, 2004).
|
|
|
|
10.19
|
|
Alliance
Capital Management L.P. Partners Plan of Repurchase adopted as of
February 20, 2003 (incorporated by reference to Exhibit 10.2 to
Form 10-K for the fiscal year ended December 31, 2002, as filed
March 27, 2003).
|
|
|
|
10.20
|
|
Services
Agreement dated as of April 22, 2001 between Alliance Capital
Management L.P. and AXA Equitable (incorporated by reference to
Exhibit 10.19 to Form 10-K for the fiscal year ended
December 31, 2001, as filed March 28, 2002).
|
|
|
|
10.21
|
|
Registration
Rights Agreement dated as of October 2, 2000 by and among Alliance
Capital Management L.P., SCB Inc. and SCB Partners Inc. (incorporated
by
reference to Exhibit 10.17 to Form 10-K for the fiscal year
ended December 31, 2000, as filed April 2,
2001).
|
|
|
|
10.22
|
|
Purchase
Agreement dated as of June 20, 2000 by and among Alliance Capital
Management L.P., AXA Financial and SCB Inc. (incorporated by reference
to
Exhibit 10.18 to Form 10-K for the fiscal year ended
December 31, 2000, as filed April 2,
2001).
|
10.23
|
|
Alliance
Capital Management L.P. Annual Elective Deferral Plan (incorporated
by
reference to Exhibit 99 to Form S-8, as filed November 6,
2000).
|
|
|
|
10.24
|
|
Extendible
Commercial Notes Dealer Agreement, dated as of December 14, 1999
(incorporated by reference to Exhibit 10.10 to the Form 10-K for
the fiscal year ended December 31, 1999, as filed March 28,
2000).
|
|
|
|
10.25
|
|
Amended
and Restated Investment Advisory and Management Agreement dated
January 1, 1999 among Alliance Capital Management Holding L.P.,
Alliance Corporate Finance Group Incorporated and AXA Equitable
(incorporated by reference to Exhibit (a)(6) to Form 10-Q/A
for the quarterly period ended September 30, 1999, as filed on
September 28, 2000).
|
|
|
|
10.26
|
|
Amended
and Restated Accounting, Valuation, Reporting and Treasury Services
Agreement dated January 1, 1999 between Alliance Capital Management
Holding L.P., Alliance Corporate Finance Group Incorporated and AXA
Equitable (incorporated by reference to Exhibit (a)(7) to the
Form 10-Q/A for the quarterly period ended September 30, 1999,
as filed September 28, 2000).
|
|
|
|
10.27
|
|
AllianceBernstein
L.P. Century Club Plan (incorporated by reference to Exhibit 4.3 to
Form S-8, as filed July 12, 1993).
|
|
|
|
10.28
|
|
Alliance
Capital Accumulation Plan (incorporated by reference to Exhibit 10.11
to Form 10-K for the fiscal year ended December 31, 1988, as
filed March 31, 1989).
|
|
|
|
|
|
AllianceBernstein
Consolidated Ratio of Earnings to Fixed Charges in respect of the
years
ended December 31, 2006, 2005, and 2004.
|
|
|
|
|
|
Subsidiaries
of AllianceBernstein.
|
|
|
|
|
|
Consents
of PricewaterhouseCoopers LLP.
|
|
|
|
|
|
Consents
of KPMG LLP.
|
|
|
|
|
|
Certification
of Mr. Sanders furnished pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
Certification
of Mr. Joseph furnished pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
Certification
of Mr. Sanders furnished for
the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of
the
Securities Exchange Act of 1934 and
18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
Certification
of Mr. Joseph furnished for the purpose of complying with Rule
13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934
and 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
Pursuant
to the requirements of Section 13 or 15(d) of the Exchange Act, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
ALLIANCEBERNSTEIN
HOLDING
L.P.
|
|
|
|
|
Date:
February 27, 2007
|
By:
|
/s/
Lewis A. Sanders
|
|
|
|
Lewis
A. Sanders
|
|
|
|
Chairman
of the Board
and
Chief Executive Officer
|
|
Pursuant
to the requirements of the Exchange Act, this report has been signed by the
following persons on behalf of the Registrant and in the capacities and on
the
dates indicated.
Date:
February 27, 2007
|
|
/s/
Robert H. Joseph, Jr.
|
|
|
|
Robert
H. Joseph, Jr.
|
|
|
|
Senior
Vice President and
Chief
Financial Officer
|
|
|
|
|
|
|
|
/s/
Edward J. Farrell
|
|
Date:
February 27, 2007
|
|
Edward
J. Farrell
|
|
|
|
Senior
Vice President and
Chief
Accounting Officer
|
|
DIRECTORS
/s/
Lewis A. Sanders
|
|
/s/
Weston M. Hicks
|
Lewis
A. Sanders
|
|
Weston
M. Hicks
|
Chairman
of the Board
|
|
Director
|
|
|
|
/s/
Dominique Carrel-Billiard
|
|
/s/
Gerald M. Lieberman
|
Dominique
Carrel-Billiard
|
|
Gerald
M. Lieberman
|
Director
|
|
Director
|
|
|
|
/s/
Christopher M. Condron
|
|
/s/
Lorie A. Slutsky
|
Christopher
M. Condron
|
|
Lorie
A. Slutsky
|
Director
|
|
Director
|
|
|
|
/s/
Henri de Castries
|
|
/s/
A.W. (Pete) Smith, Jr.
|
Henri
de Castries
|
|
A.W.
(Pete) Smith, Jr.
|
Director
|
|
Director
|
|
|
|
/s/
Denis Duverne
|
|
/s/
Peter J. Tobin
|
Denis
Duverne
|
|
Peter
J. Tobin
|
Director
|
|
Director
|
|
|
|
/s/
Peter Etzenbach
|
|
|
Peter
Etzenbach
|
|
|
Director
|
|
|
|
|
|
SCHEDULE
II
AllianceBernstein
L.P.
Valuation
and Qualifying Account - Allowance for Doubtful Accounts
For
the Three Years Ending December 31, 2006, 2005 and 2004
Description
|
|
Balance
at Beginning of Period
|
|
Charged
to Costs and Expenses
|
|
Deductions
|
|
Balance
at End of Period
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
For
the year ended December 31, 2004
|
|
$
|
2,922
|
|
$
|
-
|
|
$
|
1,215
|
(a)
|
$
|
1,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the year ended December 31, 2005
|
|
$
|
1,707
|
|
$
|
55
|
|
$
|
823
|
(b)
|
$
|
939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the year ended December 31, 2006
|
|
$
|
939
|
|
$
|
251
|
|
$
|
77
|
(c)
|
$
|
1,113
|
|
(a)
Includes accounts written-off as uncollectible of $1,115 and reduction of
allowance balance of $100.
(b)
Includes accounts written-off as uncollectible of $123 and reduction of
allowance balance of $700.
(c)
Includes accounts written-off as uncollectible of $93 and a net addition
to the
allowance balance of $16.
Report
of Independent Registered Public Accounting Firm on
Financial
Statement Schedule
To
the
Board of Directors
of
AllianceBernstein L.P.
Our
audits of the
consolidated financial
statements, of management’s assessment of the effectiveness of internal control
over financial reporting and of the effectiveness of internal control over
financial reporting referred to in our report dated February 27,
2007 appearing
in the 2006 Annual Report to Shareholders of AllianceBernstein L.P. (which
report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the financial statement schedules listed in Item
15(a)
of this Form 10-K. In our opinion, based
on
our audits and the report of other auditors,
this
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial
statements.
/s/
PricewaterhouseCoopers LLP
New
York,
New York
February
27, 2007
Report
of Independent Registered Public Accounting Firm
The
General Partner and Unitholders
AllianceBernstein
L.P.:
Under
date of February 24, 2006, we reported on the consolidated statement of
financial condition of AllianceBernstein L.P. and subsidiaries
(“AllianceBernstein”) as of December 31, 2005, and the related consolidated
statements of income, changes in partners’ capital and comprehensive income and
cash flows for each of the years in the two-year period ended December 31,
2005, which are included in this Form 10-K. In connection with our audits
of the aforementioned consolidated financial statements, we also audited
the
related consolidated financial statement schedule referenced in Item 15
(a) of
this Form 10-K. This financial statement schedule is the responsibility of
the General Partner’s management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits.
In
our
opinion, such financial statement schedule, when considered in relation
to the
basic consolidated financial statements taken as a whole, present fairly,
in all
material respects, the information set forth therein.
/s/
KPMG LLP
|
|
New
York, New York
February
24, 2006
|