UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2014

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to

Commission file number 001-09818
ALLIANCEBERNSTEIN HOLDING L.P.
(Exact name of registrant as specified in its charter)

Delaware
 
13-3434400
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
1345 Avenue of the Americas, New York, N.Y.
 
10105
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code: (212) 969-1000

Securities registered pursuant to Section 12(b) of the Act:

Title of Class
 
Name of each exchange on which registered
units representing assignments of beneficial ownership of limited partnership interests
 
New York Stock Exchange

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   No

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   No

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   No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   No

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.   

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

(Check one):

Large accelerated filer 
Accelerated filer  
Non-accelerated filer 
Smaller reporting company  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes   No

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, 2014 was approximately $2.3 billion.

The number of units representing assignments of beneficial ownership of limited partnership interests outstanding as of December 31, 2014 was 100,756,999. (This figure includes 100,000 units of general partnership interest having economic interests equivalent to the economic interests of the units representing assignments of beneficial ownership of limited partnership interests.)

DOCUMENTS INCORPORATED BY REFERENCE

This Form 10-K does not incorporate any document by reference.
 


Table of Contents

Glossary of Certain Defined Terms
ii
     
Part I
   
Item 1.
1
Item 1A.
15
Item 1B.
22
Item 2.
22
Item 3.
22
Item 4.
23
     
Part II
   
Item 5.
24
Item 6.
26
 
26
 
27
Item 7.
28
 
28
 
29
 
31
Item 7A.
50
 
50
 
50
Item 8.
52
 
53
 
66
Item 9.
105
Item 9A.
105
Item 9B.
106
     
Part III
   
Item 10.
107
Item 11.
116
Item 12.
132
Item 13.
137
Item 14.
139
     
Part IV
   
Item 15.
140
142

Glossary of Certain Defined Terms

AB” – 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, AB Holding and ACMC, Inc. and their respective subsidiaries.

AB Holding” – AllianceBernstein Holding L.P. (Delaware limited partnership).

AB Holding Partnership Agreement” – the Amended and Restated Agreement of Limited Partnership of AB Holding, dated as of October 29, 1999 and as amended February 24, 2006.

AB Holding Units” – units representing assignments of beneficial ownership of limited partnership interests in AB Holding.

AB Partnership Agreement” – the Amended and Restated Agreement of Limited Partnership of AB, dated as of October 29, 1999 and as amended February 24, 2006.

AB Units” – units of limited partnership interest in AB.

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’s operations are diverse geographically, with major operations in Europe, North America and the Asia/Pacific regions and, to a lesser extent, in other regions including the Middle East, Africa and Latin America. AXA has five operating business segments: life and savings, property and casualty, international insurance, asset management and banking.

AXA Equitable” – AXA Equitable Life Insurance Company (New York stock life insurance company), a subsidiary of AXA Financial, and its subsidiaries other than AB and its subsidiaries.

AXA Financial” – AXA Financial, Inc. (Delaware corporation), a subsidiary of AXA.

Bernstein Transaction” – on October 2, 2000, AB’s acquisition of the business and assets of SCB Inc., formerly known as Sanford C. Bernstein Inc., and assumption of the liabilities of that 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 AB and AB Holding and a subsidiary of AXA Equitable, and, where appropriate, ACMC, LLC, its predecessor.

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” – AB and AB Holding together.

SEC” – the United States Securities and Exchange Commission.

Securities Act” – the Securities Act of 1933, as amended.

WPS Acquisition” – on December 12, 2013, AB acquired W.P. Stewart & Co., Ltd. (“WPS”), a concentrated growth equity investment manager.
 

PART I

Item 1. Business

The words “we” and “our” in this Form 10-K refer collectively to AB Holding and AB and its subsidiaries, or to their officers and employees. Similarly, the words “company” and “firm” refer to both AB Holding and AB. Where the context requires distinguishing between AB Holding and AB, we identify which company is being discussed. Cross-references are in italics.

We use “global” in this Form 10-K to refer to all nations, including the United States; we use “international” or “non-U.S.” to refer to nations other than the United States.

We use “emerging markets” in this Form 10-K to refer to countries included in the Morgan Stanley Capital International (“MSCI”) emerging markets index, which are, as of December 31, 2014, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Malaysia, Mexico, Peru, the Philippines, Poland, Russia, South Africa, South Korea, Taiwan, Thailand and Turkey.

Clients

We provide research, diversified investment management and related services globally to a broad range of clients through three buy-side distribution channels, Institutions, Retail and Private Wealth Management, and our sell-side business, Bernstein Research Services.  See “Distribution Channels” in this Item 1 for additional information.

As of December 31, 2014, 2013 and 2012, our client assets under management (“AUM”) were $474 billion, $450 billion and $430 billion, respectively, and our net revenues for the years ended December 31, 2014, 2013 and 2012 were $3.0 billion, $2.9 billion and $2.7 billion, respectively. AXA, our parent company, and its subsidiaries, whose AUM consist primarily of fixed income investments, together constitute our largest client. Our affiliates represented approximately 23%, 23% and 25% of our AUM as of December 31, 2014, 2013 and 2012, respectively, and we earned approximately 5%, 5% and 4% of our net revenues from services we provided to our affiliates in 2014, 2013 and 2012, respectively. See “Distribution Channels” below and “Assets Under Management” and “Net Revenues” in Item 7 for additional information regarding our AUM and net revenues.

Generally, we are compensated for our investment services on the basis of investment advisory and services fees calculated as a percentage of AUM. For additional information about our investment advisory and services fees, including performance-based fees, seeRisk Factorsin Item 1A and “Net Revenues – Investment Advisory and Services Fees” in Item 7.

Research

Our high-quality, in-depth research is the foundation of our business. We believe that our global team of research professionals, whose disciplines include economic, fundamental equity, fixed income and quantitative research, gives us a competitive advantage in achieving investment success for our clients. We also have experts focused on multi-asset strategies, wealth management and alternative investments.

Investment Services

Our broad range of investment services includes:

Ÿ Actively managed equity strategies with global and regional portfolios across capitalization ranges and investment strategies, including  value, growth and core equities;
Ÿ Actively managed traditional and unconstrained fixed income strategies, including taxable and tax-exempt strategies;
Ÿ Passive management, including index and enhanced index strategies;
Ÿ Alternative investments, including hedge funds, fund of funds and private equity (e.g., direct real estate investing); and
Ÿ Multi-asset services and solutions, including dynamic asset allocation, customized target-date funds and target-risk funds.

Our services span 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, emerging markets, regional and local), in major markets around the world.
 
Our AUM by client domicile and investment service as of December 31, 2014, 2013 and 2012 were as follows:

By Client Domicile ($ in billions):
 

 
By Investment Service ($ in billions):
 

Distribution Channels

Institutions

To these clients, which include private and public pension plans, foundations and endowments, insurance companies, central banks and governments worldwide, and various of our affiliates, we offer separately-managed accounts, sub-advisory relationships, structured products, collective investment trusts, mutual funds, hedge funds and other investment vehicles (“Institutional Services”).

We manage the assets of our institutional clients pursuant to written investment management agreements or other arrangements,  which generally are 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. For information about our institutional investment advisory and services fees, including performance-based fees, seeRisk Factorsin Item 1A and “Net Revenues – Investment Advisory and Services Fees” in Item 7.

AXA and its subsidiaries together constitute our largest institutional client. Their AUM accounted for approximately 32%, 31% and 35% of our institutional AUM as of December 31, 2014, 2013 and 2012, respectively, and approximately 22%, 22% and 17% of our institutional revenues for 2014, 2013 and 2012, respectively. No single institutional client other than AXA and its subsidiaries accounted for more than approximately 1% of our net revenues for the year ended December 31, 2014.
 
As of December 31, 2014, 2013 and 2012, Institutional Services represented approximately 50%, 50% and 51%, respectively, of our AUM, and the fees we earned from providing these services represented approximately 14%, 15% and 18% of our net revenues for 2014, 2013 and 2012, respectively. Our AUM and revenues are as follows:

Institutional Services Assets Under Management
(by Investment Service)

   
December 31,
   
% Change
 
   
2014
   
2013
   
2012
     
2014-13
     
2013-12
 
   
(in millions)
                 
                             
Equity Actively Managed:
                           
U.S.
 
$
9,631
   
$
8,438
   
$
5,748
     
14.1
%
   
46.8
%
Global & Non-US
   
19,522
     
21,100
     
25,797
     
(7.5
)
   
(18.2
)
Total
   
29,153
     
29,538
     
31,545
     
(1.3
)
   
(6.4
)
                                         
Equity Passively Managed(1):
                                       
U.S.
   
16,196
     
14,111
     
11,494
     
14.8
     
22.8
 
Global & Non-US
   
5,818
     
6,555
     
6,131
     
(11.2
)
   
6.9
 
Total
   
22,014
     
20,666
     
17,625
     
6.5
     
17.3
 
                                         
Total Equity
   
51,167
     
50,204
     
49,170
     
1.9
     
2.1
 
                                         
Fixed Income Taxable:
                                       
U.S.
   
84,079
     
81,823
     
90,727
     
2.8
     
(9.8
)
Global & Non-US
   
64,086
     
58,647
     
53,841
     
9.3
     
8.9
 
Total
   
148,165
     
140,470
     
144,568
     
5.5
     
(2.8
)
                                         
Fixed Income Tax-Exempt:
                                       
U.S.
   
1,796
     
1,611
     
1,385
     
11.5
     
16.3
 
Global & Non-US
   
     
     
     
     
 
Total
   
1,796
     
1,611
     
1,385
     
11.5
     
16.3
 
                                         
Fixed Income Passively Managed(1):
                                       
U.S.
   
67
     
63
     
62
     
6.3
     
1.6
 
Global & Non-US
   
185
     
194
     
334
     
(4.6
)
   
(41.9
)
Total
   
252
     
257
     
396
     
(1.9
)
   
(35.1
)
                                         
Total Fixed Income
   
150,213
     
142,338
     
146,349
     
5.5
     
(2.7
)
                                         
Other(2):
                                       
U.S.
   
2,268
     
1,211
     
471
     
87.3
     
157.1
 
Global & Non-US
   
33,393
     
32,237
     
23,829
     
3.6
     
35.3
 
Total
   
35,661
     
33,448
     
24,300
     
6.6
     
37.6
 
                                         
Total:
                                       
U.S.
   
114,037
     
107,257
     
109,887
     
6.3
     
(2.4
)
Global & Non-US
   
123,004
     
118,733
     
109,932
     
3.6
     
8.0
 
Total
 
$
237,041
   
$
225,990
   
$
219,819
     
4.9
     
2.8
 
                                         
Affiliated
 
$
75,241
   
$
69,619
   
$
77,569
     
8.1
     
(10.2
)
Non-affiliated
   
161,800
     
156,371
     
142,250
     
3.5
     
9.9
 
Total
 
$
237,041
   
$
225,990
   
$
219,819
     
4.9
     
2.8
 
 

(1) Includes index and enhanced index services.
(2) Includes multi-asset solutions and services and certain alternative investments.
 

Revenues from Institutional Services
(by Investment Service)

   
Years Ended December 31,
   
% Change
 
   
2014
   
2013
   
2012
     
2014-13
     
2013-12
 
   
(in thousands)
                 
Equity Actively Managed:
                           
U.S.
 
$
54,176
   
$
48,328
   
$
43,400
     
12.1
%
   
11.4
%
Global & Non-US
   
88,777
     
98,552
     
143,108
     
(9.9
)
   
(31.1
)
Total
   
142,953
     
146,880
     
186,508
     
(2.7
)
   
(21.2
)
                                         
Equity Passively Managed(1):
                                       
U.S.
   
2,841
     
2,720
     
2,334
     
4.4
     
16.5
 
Global & Non-US
   
4,333
     
5,359
     
5,533
     
(19.1
)
   
(3.1
)
Total
   
7,174
     
8,079
     
7,867
     
(11.2
)
   
2.7
 
                                         
Total Equity
   
150,127
     
154,959
     
194,375
     
(3.1
)
   
(20.3
)
                                         
Fixed Income Taxable:
                                       
U.S.
   
92,250
     
96,125
     
94,679
     
(4.0
)
   
1.5
 
Global & Non-US
   
125,596
     
117,041
     
104,803
     
7.3
     
11.7
 
Total
   
217,846
     
213,166
     
199,482
     
2.2
     
6.9
 
                                         
Fixed Income Tax-Exempt:
                                       
U.S.
   
2,250
     
1,993
     
1,742
     
12.9
     
14.4
 
Global & Non-US
   
     
     
     
     
 
Total
   
2,250
     
1,993
     
1,742
     
12.9
     
14.4
 
                                         
Fixed Income Passively Managed(1):
                                       
U.S.
   
69
     
76
     
78
     
(9.2
)
   
(2.6
)
Global & Non-US
   
142
     
227
     
48
     
(37.4
)
   
372.9
 
Total
   
211
     
303
     
126
     
(30.4
)
   
140.5
 
                                         
Fixed Income Servicing(2):
                                       
U.S.
   
11,468
     
14,051
     
9,172
     
(18.4
)
   
53.2
 
Global & Non-US
   
2,011
     
1,789
     
4,696
     
12.4
     
(61.9
)
Total
   
13,479
     
15,840
     
13,868
     
(14.9
)
   
14.2
 
                                         
Total Fixed Income
   
233,786
     
231,302
     
215,218
     
1.1
     
7.5
 
                                         
Other(3):
                                       
U.S.
   
18,643
     
11,952
     
46,400
     
56.0
     
(74.2
)
Global & Non-US
   
30,551
     
39,895
     
28,722
     
(23.4
)
   
38.9
 
Total
   
49,194
     
51,847
     
75,122
     
(5.1
)
   
(31.0
)
                                         
Total Investment Advisory and Services Fees:
                                       
U.S.
   
181,697
     
175,245
     
197,805
     
3.7
     
(11.4
)
Global & Non-US
   
251,410
     
262,863
     
286,910
     
(4.4
)
   
(8.4
)
     
433,107
     
438,108
     
484,715
     
(1.1
)
   
(9.6
)
Distribution Revenues
   
340
     
305
     
574
     
11.5
     
(46.9
)
Shareholder Servicing Fees
   
634
     
533
     
362
     
18.9
     
47.2
 
Total
 
$
434,081
   
$
438,946
   
$
485,651
     
(1.1
)
   
(9.6
)
                                         
Affiliated
 
$
95,231
   
$
96,729
   
$
82,930
     
(1.5
)
   
16.6
 
Non-affiliated
   
338,850
     
342,217
     
402,721
     
(1.0
)
   
(15.0
)
Total
 
$
434,081
   
$
438,946
   
$
485,651
     
(1.1
)
   
(9.6
)
 

(1) Includes index and enhanced index services.
(2) Fixed Income Servicing includes advisory-related services fees that are not based on AUM, including derivative transaction fees, capital purchase program related advisory services and other fixed income advisory services.
(3) Includes multi-asset solutions and services and certain alternative services.
 
Retail

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 we sponsor, mutual fund sub-advisory relationships, separately-managed account programs (see below), and other investment vehicles (“Retail Products and Services”).

We distribute our Retail Products and Services through financial intermediaries, including broker-dealers, insurance sales representatives, banks, registered investment advisers and financial planners. These products and services include open-end and closed-end funds that are either (i) registered as investment companies under the Investment Company Act (“U.S. Funds”), or (ii) not registered under the Investment Company Act and generally not offered to United States persons (“Non-U.S. Funds” and, collectively with the U.S. Funds, “AB Funds”). They also include separately-managed account programs, which are sponsored by financial intermediaries and generally charge an all-inclusive fee covering investment management, trade execution, asset allocation, and custodial and administrative services. In addition, we provide distribution, shareholder servicing, transfer agency services and administrative services for our Retail Products and Services. See “Net Revenues – Investment Advisory and Services Fees” in Item 7 for information about our retail investment advisory and services fees. See Note 2 to AB’s consolidated financial statements in Item 8 for a discussion of the commissions we pay to financial intermediaries in connection with the sale of open-end AB Funds.

Fees paid by the U.S. Funds are reflected in the applicable investment management agreement, which generally must be approved annually by the boards of directors or trustees of those funds, including by a majority of the independent directors or trustees. Increases in these fees must be approved by fund shareholders; decreases need not be, including any decreases implemented by a fund’s directors or trustees. In general, each investment management agreement with the U.S. Funds 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 generally must 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.

The mutual funds we sub-advise for AXA and its subsidiaries together constitute our largest retail client. They accounted for approximately 21%, 23% and 20% of our retail AUM as of December 31, 2014, 2013 and 2012, respectively, and approximately 3%, 2% and 3% of our retail net revenues for 2014, 2013 and 2012, respectively.

Certain subsidiaries of AXA, including AXA Advisors, LLC (“AXA Advisors”), a subsidiary of AXA Financial, were responsible for approximately 3%, 2% and 4% of total sales of shares of open-end AB Funds in 2014, 2013 and 2012, respectively. During 2014, UBS AG was responsible for approximately 11% of our open-end AB Fund sales. Neither our affiliates nor UBS AG are under any obligation to sell a specific amount of AB Fund shares and each also sells shares of mutual funds that it sponsors and that are sponsored by unaffiliated organizations. No other entity accounted for 10% or more of our open-end AB Fund sales.

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 U.S. Funds have entered into such agreements with us, and we have entered into selling and distribution agreements pursuant to which we pay sales commissions to the financial intermediaries that distribute our open-end U.S. Funds. These agreements are terminable by either party upon notice (generally 30 days) and do not obligate the financial intermediary to sell any specific amount of fund shares.

As of December 31, 2014, retail U.S. Fund AUM were approximately $49 billion, or 30% of retail AUM, as compared to $47 billion, or 31%, as of December 31, 2013, and $45 billion, or 31%, as of December 31, 2012. Non-U.S. Fund AUM, as of December 31, 2014, totaled $57 billion, or 36% of retail AUM, as compared to $56 billion, or 36%, as of December 31, 2013, and $60 billion, or 42%, as of December 31, 2012.
 
Our Retail Services represented approximately 34% of our AUM as of each of December 31, 2014, 2013 and 2012, and the fees we earned from providing these services represented approximately 46%, 47% and 44% of our net revenues for the years ended December 31, 2014, 2013 and 2012, respectively. Our AUM and revenues are as follows:

Retail Services Assets Under Management
(by Investment Service)

   
December 31,
   
% Change
 
   
2014
   
2013
   
2012
     
2014-13
     
2013-12
 
   
(in millions)
                 
                             
Equity Actively Managed:
                           
U.S.
 
$
29,449
   
$
27,656
   
$
17,738
     
6.5
%
   
55.9
%
Global & Non-US
   
15,920
     
13,997
     
16,415
     
13.7
     
(14.7
)
Total
   
45,369
     
41,653
     
34,153
     
8.9
     
22.0
 
                                         
Equity Passively Managed(1):
                                       
U.S.
   
21,268
     
21,514
     
16,716
     
(1.1
)
   
28.7
 
Global & Non-US
   
6,600
     
6,615
     
5,491
     
(0.2
)
   
20.5
 
Total
   
27,868
     
28,129
     
22,207
     
(0.9
)
   
26.7
 
                                         
Total Equity
   
73,237
     
69,782
     
56,360
     
5.0
     
23.8
 
                                         
Fixed Income Taxable:
                                       
U.S.
   
5,934
     
4,597
     
2,738
     
29.1
     
67.9
 
Global & Non-US
   
55,059
     
56,304
     
65,990
     
(2.2
)
   
(14.7
)
Total
   
60,993
     
60,901
     
68,728
     
0.2
     
(11.4
)
                                         
Fixed Income Tax-Exempt:
                                       
U.S.
   
10,432
     
8,243
     
8,532
     
26.6
     
(3.4
)
Global & Non-US
   
14
     
14
     
     
     
 
Total
   
10,446
     
8,257
     
8,532
     
26.5
     
(3.2
)
                                         
Fixed Income Passively Managed(1):
                                       
U.S.
   
4,917
     
4,531
     
2,385
     
8.5
     
90.0
 
Global & Non-US
   
4,483
     
4,179
     
4,730
     
7.3
     
(11.6
)
Total
   
9,400
     
8,710
     
7,115
     
7.9
     
22.4
 
                                         
Total Fixed Income
   
80,839
     
77,868
     
84,375
     
3.8
     
(7.7
)
                                         
Other(2):
                                       
U.S.
   
5,349
     
3,208
     
1,981
     
66.7
     
61.9
 
Global & Non-US
   
2,072
     
2,132
     
1,676
     
(2.8
)
   
27.2
 
Total
   
7,421
     
5,340
     
3,657
     
39.0
     
46.0
 
                                         
Total:
                                       
U.S.
   
77,349
     
69,749
     
50,090
     
10.9
     
39.2
 
Global & Non-US
   
84,148
     
83,241
     
94,302
     
1.1
     
(11.7
)
Total
 
$
161,497
   
$
152,990
   
$
144,392
     
5.6
     
6.0
 
                                         
Affiliated
 
$
34,693
   
$
35,194
   
$
28,535
     
(1.4
)
   
23.3
 
Non-affiliated
   
126,804
     
117,796
     
115,857
     
7.6
     
1.7
 
Total
 
$
161,497
   
$
152,990
   
$
144,392
     
5.6
     
6.0
 
 

(1) Includes index and enhanced index services.
(2) Includes multi-asset solutions and services and certain alternative investments.
 
Revenues from Retail Services
(by Investment Service)

   
Years Ended December 31,
   
% Change
 
   
2014
   
2013
   
2012
     
2014-13
     
2013-12
 
   
(in thousands)
                 
                             
Equity Actively Managed:
                           
U.S.
 
$
182,008
   
$
134,311
   
$
92,423
     
35.5
%
   
45.3
%
Global & Non-US
   
94,491
     
96,338
     
114,220
     
(1.9
)
   
(15.7
)
Total
   
276,499
     
230,649
     
206,643
     
19.9
     
11.6
 
                                         
Equity Passively Managed(1):
                                       
U.S.
   
10,066
     
10,957
     
11,952
     
(8.1
)
   
(8.3
)
Global & Non-US
   
6,924
     
4,670
     
2,162
     
48.3
     
116.0
 
Total
   
16,990
     
15,627
     
14,114
     
8.7
     
10.7
 
                                         
Total Equity
   
293,489
     
246,276
     
220,757
     
19.2
     
11.6
 
                                         
Fixed Income Taxable:
                                       
U.S.
   
20,680
     
16,074
     
13,252
     
28.7
     
21.3
 
Global & Non-US
   
429,409
     
483,171
     
405,208
     
(11.1
)
   
19.2
 
Total
   
450,089
     
499,245
     
418,460
     
(9.8
)
   
19.3
 
                                         
Fixed Income Tax-Exempt:
                                       
U.S.
   
38,317
     
35,993
     
28,906
     
6.5
     
24.5
 
Global & Non-US
   
78
     
78
     
     
     
 
Total
   
38,395
     
36,071
     
28,906
     
6.4
     
24.8
 
                                         
Fixed Income Passively Managed(1):
                                       
U.S.
   
2,836
     
2,153
     
1,144
     
31.7
     
88.2
 
Global & Non-US
   
8,438
     
8,605
     
7,056
     
(1.9
)
   
22.0
 
Total
   
11,274
     
10,758
     
8,200
     
4.8
     
31.2
 
                                         
Total Fixed Income
   
499,758
     
546,074
     
455,566
     
(8.5
)
   
19.9
 
                                         
Other(2):
                                       
U.S.
   
64,452
     
22,819
     
14,306
     
182.4
     
59.5
 
Global & Non-US
   
9,277
     
9,785
     
7,424
     
(5.2
)
   
31.8
 
Total
   
73,729
     
32,604
     
21,730
     
126.1
     
50.0
 
                                         
Total Investment Advisory and Services Fees:
                                       
U.S.
   
318,359
     
222,307
     
161,983
     
43.2
     
37.2
 
Global & Non-US
   
548,617
     
602,647
     
536,070
     
(9.0
)
   
12.4
 
     
866,976
     
824,954
     
698,053
     
5.1
     
18.2
 
Distribution Revenues
   
440,961
     
461,944
     
406,467
     
(4.5
)
   
13.6
 
Shareholder Servicing Fees
   
89,198
     
89,472
     
88,375
     
(0.3
)
   
1.2
 
Total
 
$
1,397,135
   
$
1,376,370
   
$
1,192,895
     
1.5
     
15.4
 
                                         
Affiliated
 
$
47,910
   
$
43,264
   
$
31,089
     
10.7
     
39.2
 
Non-affiliated
   
1,349,225
     
1,333,106
     
1,161,806
     
1.2
     
14.7
 
Total
 
$
1,397,135
   
$
1,376,370
   
$
1,192,895
     
1.5
     
15.4
 
 

(1) Includes index and enhanced index services.
(2) Includes multi-asset solutions and services and certain alternative investments.


Private Wealth Management

To our private wealth clients, which include high-net-worth individuals and families, trusts and estates, charitable foundations, partnerships, private and family corporations, and other entities (including most institutions for which we manage accounts with less than $25 million in AUM), we offer separately-managed accounts, hedge funds, mutual funds and other investment vehicles (“Private Wealth Services”).

We manage these accounts pursuant to written investment advisory agreements, which generally are terminable at any time or upon relatively short notice by any party and may not be assigned without the consent of the client. For information about our investment advisory and services fees, including performance-based fees, seeRisk Factorsin Item 1A and “Net Revenues – Investment Advisory and Services Fees” in Item 7.

As of December 31, 2014, 2013 and 2012, Private Wealth Services represented approximately 16%, 16% and 15%, respectively, of our AUM, and the fees we earned from providing these services represented approximately 22%, 20% and 21% of our net revenues for 2014, 2013 and 2012, respectively. Our AUM and revenues are as follows:

Private Wealth Services Assets Under Management
(by Investment Service)

   
December 31,
   
% Change
 
   
2014
   
2013
   
2012
     
2014-13
     
2013-12
 
   
(in millions)
                 
                             
Equity Actively Managed:
                           
U.S.
 
$
22,842
   
$
21,620
   
$
16,506
     
5.7
%
   
31.0
%
Global & Non-US
   
15,125
     
15,003
     
13,222
     
0.8
     
13.5
 
Total
   
37,967
     
36,623
     
29,728
     
3.7
     
23.2
 
                                         
Equity Passively Managed(1):
                                       
U.S.
   
172
     
83
     
67
     
107.2
     
23.9
 
Global & Non-US
   
402
     
397
     
371
     
1.3
     
7.0
 
Total
   
574
     
480
     
438
     
19.6
     
9.6
 
                                         
Total Equity
   
38,541
     
37,103
     
30,166
     
3.9
     
23.0
 
                                         
Fixed Income Taxable:
                                       
U.S.
   
7,396
     
7,468
     
8,962
     
(1.0
)
   
(16.7
)
Global & Non-US
   
2,871
     
2,128
     
1,755
     
34.9
     
21.3
 
Total
   
10,267
     
9,596
     
10,717
     
7.0
     
(10.5
)
                                         
Fixed Income Tax-Exempt:
                                       
U.S.
   
19,401
     
18,843
     
20,835
     
3.0
     
(9.6
)
Global & Non-US
   
3
     
2
     
     
50.0
     
 
Total
   
19,404
     
18,845
     
20,835
     
3.0
     
(9.6
)
                                         
Fixed Income Passively Managed(1):
                                       
U.S.
   
5
     
11
     
31
     
(54.5
)
   
(64.5
)
Global & Non-US
   
402
     
357
     
355
     
12.6
     
0.6
 
Total
   
407
     
368
     
386
     
10.6
     
(4.7
)
                                         
Total Fixed Income
   
30,078
     
28,809
     
31,938
     
4.4
     
(9.8
)
                                         
Other(2):
                                       
U.S.
   
1,902
     
1,375
     
804
     
38.3
     
71.0
 
Global & Non-US
   
4,968
     
4,144
     
2,898
     
19.9
     
43.0
 
Total
   
6,870
     
5,519
     
3,702
     
24.5
     
49.1
 
                                         
Total:
                                       
U.S.
   
51,718
     
49,400
     
47,205
     
4.7
     
4.6
 
Global & Non-US
   
23,771
     
22,031
     
18,601
     
7.9
     
18.4
 
Total
 
$
75,489
   
$
71,431
   
$
65,806
     
5.7
     
8.5
 
 

(1) Includes index and enhanced index services.
(2) Includes multi-asset solutions and services and certain alternative investments.
 
Revenues From Private Wealth Services
(by Investment Service)

   
Years Ended December 31,
   
% Change
 
   
2014
   
2013
   
2012
     
2014-13
     
2013-12
 
   
(in thousands)
                 
                             
Equity Actively Managed:
                           
U.S.
 
$
250,415
   
$
211,927
   
$
209,263
     
18.2
%    
1.3
%
Global & Non-US
   
169,472
     
153,062
     
149,732
     
10.7
     
2.2
 
Total
   
419,887
     
364,989
     
358,995
     
15.0
     
1.7
 
                                         
Equity Passively Managed(1):
                                       
U.S.
   
695
     
316
     
65
     
119.9
     
386.2
 
Global & Non-US
   
1,839
     
1,800
     
1,666
     
2.2
     
8.0
 
Total
   
2,534
     
2,116
     
1,731
     
19.8
     
22.2
 
                                         
Total Equity
   
422,421
     
367,105
     
360,726
     
15.1
     
1.8
 
                                         
Fixed Income Taxable:
                                       
U.S.
   
39,811
     
44,260
     
48,906
     
(10.1
)
   
(9.5
)
Global & Non-US
   
15,778
     
13,029
     
12,319
     
21.1
     
5.8
 
Total
   
55,589
     
57,289
     
61,225
     
(3.0
)
   
(6.4
)
                                         
Fixed Income Tax-Exempt:
                                       
U.S.
   
102,509
     
104,867
     
117,035
     
(2.2
)
   
(10.4
)
Global & Non-US
   
27
     
18
     
     
50.0
     
 
Total
   
102,536
     
104,885
     
117,035
     
(2.2
)
   
(10.4
)
                                         
Fixed Income Passively Managed(1):
                                       
U.S.
   
9
     
88
     
26
     
(89.8
)
   
238.5
 
Global & Non-US
   
3,446
     
3,105
     
1,184
     
11.0
     
162.2
 
Total
   
3,455
     
3,193
     
1,210
     
8.2
     
163.9
 
                                         
Total Fixed Income
   
161,580
     
165,367
     
179,470
     
(2.3
)
   
(7.9
)
                                         
Other(2):
                                       
U.S.
   
16,566
     
12,699
     
9,592
     
30.5
     
32.4
 
Global & Non-US
   
57,600
     
40,872
     
31,919
     
40.9
     
28.0
 
Total
   
74,166
     
53,571
     
41,511
     
38.4
     
29.1
 
                                         
Total Investment Advisory and Services Fees:
                                       
U.S.
   
410,005
     
374,157
     
384,887
     
9.6
     
(2.8
)
Global & Non-US
   
248,162
     
211,886
     
196,820
     
17.1
     
7.7
 
Total
   
658,167
     
586,043
     
581,707
     
12.3
     
0.7
 
Distribution Revenues
   
3,669
     
3,175
     
2,447
     
15.6
     
29.8
 
Shareholder Servicing Fees
   
2,488
     
2,140
     
1,637
     
16.3
     
30.7
 
Total
 
$
664,324
   
$
591,358
   
$
585,791
     
12.3
     
1.0
 
 

(1) Includes index and enhanced index services.
(2) Includes multi-asset solutions and services and certain alternative investments.
 
Bernstein Research Services

We offer high-quality fundamental research, quantitative services and brokerage-related services in equities and listed options to institutional investors, such as pension fund, hedge fund and mutual fund managers, and other institutional investors (“Bernstein Research Services”). We serve our clients, which are based in the United States, Europe, Asia, the Middle East and Canada, through various subsidiaries, including Sanford C. Bernstein & Co., LLC (“SCB LLC”), Sanford C. Bernstein Limited and Sanford C. Bernstein (Hong Kong) Limited (collectively, “SCB”). Our sell-side analysts, who provide fundamental company and industry research along with quantitative research into securities valuation and factors affecting stock-price movements, are consistently among the highest ranked research analysts in industry surveys conducted by third-party organizations.

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 on their behalf, for which we earn commissions. These services accounted for approximately 16%, 15% and 15% of our net revenues for the years ended December 31, 2014, 2013 and 2012, respectively.

For information regarding trends in fee rates charged for brokerage transactions, see “Risk Factors” in Item 1A.

Our Bernstein Research Services revenues are as follows:

Revenues From Bernstein Research Services

 
Years Ended December 31,
   
% Change
 
 
2014
 
2013
 
2012
    2014-13     2013-12  
 
(in thousands)
                 
                       
Bernstein Research Services
 
$
482,538
   
$
445,083
   
$
413,707
     
8.4
%
   
7.6
%

Custody

SCB LLC acts as custodian for the majority of our Private Wealth Management AUM and some of our Institutions AUM. Other custodial arrangements are maintained by client-designated banks, trust companies, brokerage firms or custodians.

Employees

As of December 31, 2014, our firm had 3,487 full-time employees, representing a 5.8% increase compared to the end of 2013.  We consider our employee relations to be good.

Service Marks

We have registered a number of service marks with the U.S. Patent and Trademark Office and various foreign trademark offices, including the mark “AllianceBernstein”.  The [A/B] logo and “Ahead of Tomorrow” are service marks of AB.

In January 2015, we established two new brand identities.  Although the legal names of our corporate entities have not changed, our company, and our Institutions and Retail businesses, now are referred to as “AB”.  Private Wealth Management and Bernstein Research Services now are referred to as “AB Bernstein”.  Also, we adopted the [A/B] logo and “Ahead of Tomorrow” service marks described above.

In connection with the Bernstein Transaction, we acquired all of the rights in, and title to, the Bernstein service marks, including the mark “Bernstein”.

In connection with the WPS Acquisition, we acquired all of the rights in, and title to, the WPS service marks, including the logo “WPSTEWART”. See “W.P. Stewart” in this Item 1 for information regarding the WPS Acquisition.

Regulation

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. These laws and regulations primarily are intended to protect 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. 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.
 
AB, AB Holding, the General Partner and five of our subsidiaries (SCB LLC, AllianceBernstein Global Derivatives Corporation (“Global Derivatives), AB Private Credit Investors LLC, WPS and W.P. Stewart Asset Management LLC) are registered with the SEC as investment advisers under the Investment Advisers Act. Also, AB Holding is an NYSE-listed company and, accordingly, is subject to applicable regulations promulgated by the NYSE. In addition, AB, SCB LLC and Global Derivatives are registered with the Commodity Futures Trading Commission (“CFTC”) as commodity pool operators and commodity trading advisers; SCB LLC also is registered with the CFTC as a futures commissions merchant.

Each U.S. Fund is registered with the SEC under the Investment Company Act and each Non-U.S. Fund is subject to the laws in the jurisdiction in which the fund is registered. For example, our platform of Luxembourg-based funds operates pursuant to Luxembourg laws and regulations, including Undertakings for the Collective Investment in Transferable Securities Directives, and is authorized and supervised by the Commission de Surveillance du Secteur Financier (“CSSF”), the primary regulator in Luxembourg. AllianceBernstein Investor Services, Inc. (“ABIS”), one of our subsidiaries, is registered with the SEC as a transfer and servicing agent.

SCB LLC and another of our subsidiaries, AllianceBernstein Investments, Inc. (“AllianceBernstein Investments”), are registered with the SEC as broker-dealers, and both are members of the Financial Industry Regulatory Authority. In addition, SCB LLC is a member of the NYSE and other principal U.S. exchanges.

Many of our subsidiaries are subject to the oversight of regulatory authorities in the jurisdictions outside the United States where they operate, including the European Securities and Markets Authority, the Financial Conduct Authority in the U.K., the CSSF in Luxembourg, the Financial Services Agency in Japan, the Securities & Futures Commission in Hong Kong, the Monetary Authority of Singapore, the Financial Services Commission in South Korea and the Financial Supervisory Commission in Taiwan. While these regulatory requirements often may be comparable to the requirements of the SEC and other U.S. regulators, they are sometimes more restrictive and may cause us to incur substantial expenditures of time and money in our efforts to comply.

Iran Threat Reduction and Syria Human Rights Act

AB, AB Holding and their global subsidiaries had no transactions or activities requiring disclosure under the Iran Threat Reduction and Syria Human Rights Act (“Iran Act”), nor were they involved in the AXA Group matters described immediately below.

The non-U.S. based subsidiaries of AXA operate in compliance with applicable laws and regulations of the various jurisdictions where they operate, including applicable international (United Nations and European Union) laws and regulations.  While AXA Group companies based and operating outside the United States generally are not subject to U.S. law, as an international group, AXA has in place policies and standards (including the AXA Group International Sanctions Policy) that apply to all AXA Group companies worldwide and often impose requirements that go well beyond local law. For additional information regarding AXA, see “Principal Security Holders” in Item 12.

AXA has reported to us that six insurance policies underwritten by one of AXA’s European insurance subsidiaries, AXA France IARD (“AXA France”), that were in-force at times during 2014 and potentially came within the scope of the disclosure requirements of the Iran Act, were terminated during 2014. Each of these insurance policies related to property and casualty insurance (homeowners, auto, accident, liability and/or fraud policies) covering property located in France where the insured is a company or other entity that may have direct or indirect ties to the Government of Iran, including Iranian entities designated under Executive Orders 13224 and 13382. AXA France is a French company, based in Paris, which is licensed to operate in France. The annual aggregate revenue AXA derived from these policies was approximately $6,500 and the related net profit, which was difficult to calculate with precision, is estimated to have been $3,250.

AXA has informed us that AXA Konzern AG (“AXA Konzern”), a subsidiary of AXA organized under the laws of Germany, has a German client designated under Executive Order 13382.  This client has a pension savings contract with AXA Konzern with an annual premium of approximately $15,000. The related annual net profit arising from this contract, which is difficult to calculate with precision, is estimated to be $7,500.  This contract will end in March 2015.  In addition, a subsidiary of the same German client has a life insurance contract (which includes a savings element) with AXA Konzern, with an annual premium of approximately $1,400.  The related annual net profit arising from this contract, which is difficult to calculate with precision, is estimated to be $700.  AXA Konzern intends to leave these contracts in place as there is no legal basis that would allow a German company to cancel such a contract.

AXA also has informed us that AXA Konzern provides car insurance to two diplomats based at the Iranian embassy in Berlin, Germany.  The total annual premium of these policies is approximately $600 and the annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $300.  These policies were underwritten by a broker who specializes in providing insurance coverage for diplomats. Provision of motor vehicle insurance is mandatory in Germany and cannot be cancelled until the policies expire.
 
AXA previously informed us that AXA Konzern had taken actions to terminate property insurance provided to Industrial Commercial Services (“ICS”) for an office building in Hamburg, Germany.  ICS is a company that some reports suggest may be owned by the Iranian Mines and Mining Industries Development and Renovation Organization, an entity designated as a Specially Designated National and Blocked Person (an “SDN”) by the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”) with the identifier [IRAN].  As of the date of this report, AXA Konzern has confirmed that this policy has been terminated. The annual premium in respect of this policy was approximately $2,500.  The related annual net profit arising from this policy, which was difficult to calculate with precision, is estimated to have been $1,250.

In addition, AXA has informed us that AXA Ireland, an AXA insurance subsidiary, provides statutorily required car insurance under four separate policies to the Iranian Embassy in Dublin, Ireland. AXA has informed us that compliance with the Declined Cases Agreement of the Irish Government prohibits the cancellation of these policies unless another insurer is willing to assume the cover. The total annual premium for these policies is approximately $6,000 and the annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $3,000.

Also, AXA has informed us that AXA Sigorta, a subsidiary of AXA organized under the laws of Turkey, provides car insurance coverage for the vehicle pools of the Iranian General Consulate and the Iranian embassy in Istanbul, Turkey. The total annual premium in respect of these policies is approximately $5,100 and the annual net profit, which is difficult to calculate with precision, is estimated to be $2,550.  These policies will expire in 2015.

Lastly, AXA has informed us about a pension contract in place between a subsidiary in Hong Kong, AXA China Region Trustees Limited (“AXA CRT”), and Hong Kong Intertrade Ltd (“HKIL”), an entity that OFAC has designated an SDN with the identifier [IRAN]. There is only one employee of HKIL (“Employee”) enrolled in this pension contract, who himself also has been designated an SDN with the identifier [IRAN]. The pension contract with HKIL was entered into, and the enrollment of the Employee took place, in May 2012. HKIL was first designated an SDN in July 2012 and the Employee was first designated an SDN in May 2013. Local authorities have informed AXA CRT that the pension contract cannot be cancelled.  The annual pension contributions received under this pension contract total approximately $7,800 and the related net profit, which is difficult to calculate with precision, is estimated to be $3,900.

The aggregate annual premiums for the above-referenced insurance policies and pension contracts is approximately $44,900, representing approximately 0.00003% of AXA’s 2014 consolidated revenues, which are likely to be approximately $100 billion. The related net profit, which is difficult to calculate with precision, is estimated to be $22,450, representing approximately 0.0003% of AXA’s 2014 aggregate net profit.

History and Structure

We have been in the investment research and management business for more than 40 years. Alliance Capital was founded in 1971 when the investment management department of Donaldson, Lufkin & Jenrette, Inc. (since November 2000, a part of Credit Suisse Group) merged with the investment advisory business of Moody’s Investor Services, Inc. Bernstein was founded in 1967.

In April 1988, AB Holding “went public” as a master limited partnership. AB Holding Units, which trade under the ticker symbol “AB”, have been listed on the NYSE since that time.

In October 1999, AB Holding reorganized by transferring its business and assets to AB, a newly-formed operating partnership, in exchange for all of the AB Units (“Reorganization”). Since the date of the Reorganization, AB has conducted the business formerly conducted by AB Holding and AB Holding’s activities have consisted of owning AB Units and engaging in related activities. Unlike AB Holding Units, AB Units do not trade publicly and are subject to significant restrictions on transfer. The General Partner is the general partner of both AB and AB 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 Wealth Management and Bernstein Research Services businesses. For additional details about this business combination, see Note 2 to AB’s consolidated financial statements in Item 8.

As of December 31, 2014, the condensed ownership structure of AB is as follows (for a more complete description of our ownership structure, see “Principal Security Holders” in Item 12):
 

 
The General Partner owns 100,000 general partnership units in AB Holding and a 1% general partnership interest in AB. Including these general partnership interests, AXA, through certain of its subsidiaries (see “Principal Security Holders” in Item 12), had an approximate 62.7% economic interest in AB as of December 31, 2014.

Competition
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.

In addition, AXA and its subsidiaries provide financial services, some of which compete with those we offer. The AB Partnership Agreement specifically allows AXA and its subsidiaries (other than the General Partner) to compete with AB and to exploit opportunities that may be available to us. AXA, AXA Financial, AXA Equitable and certain of their respective 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 AUM. Key competitive factors include:

Ÿ our investment performance for clients;
Ÿ our commitment to place the interests of our clients first;
Ÿ the quality of our research;
Ÿ our ability to attract, motivate and retain highly skilled, and often highly specialized, personnel;
Ÿ the array of investment products we offer;
Ÿ the fees we charge;
Ÿ Morningstar/Lipper rankings for the AB Funds;
Ÿ our operational effectiveness;
Ÿ our ability to further develop and market our brand; and
Ÿ our global presence.

Competition is an important risk that our business faces and should be considered along with the other risk factors we discuss in “Risk Factors” in Item 1A.
 
Available Information

AB and AB Holding file or furnish annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to such reports, and other reports (and amendments thereto) required to comply with federal securities laws, including Section 16 beneficial ownership reports on Forms 3, 4 and 5, registration statements and proxy statements.  We maintain an Internet site (http://www.abglobal.com) where the public can view these reports, free of charge, as soon as reasonably practicable after each report is filed with, or furnished to, the SEC. In addition, the SEC 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.

W.P. Stewart

On December 12, 2013, we acquired WPS, an equity investment manager that managed, as of December 12, 2013, approximately $2.1 billion in U.S., Global and Europe, Australasia (Australia and New Zealand) and Far East (“EAFE”) concentrated growth equity strategies for its clients, primarily in the U.S. and Europe. On the date of the WPS Acquisition, each of approximately 4.9 million outstanding shares of WPS common stock (other than certain specified shares, as previously disclosed in Amendment No. 2 to Form S-4 filed by AB on November 8, 2013) was converted into the right to receive $12 per share and one transferable contingent value right (“CVRs”) entitling the holders to an additional $4 per share cash payment if the Assets Under Management (as such term is defined in the Contingent Value Rights Agreement (“CVR Agreement”) dated as of December 12, 2013, a copy of which we filed as Exhibit 4.01 (“Exhibit 4.01”) to our Form 10-K for the year ended December 31, 2013) in the acquired WPS investment services exceed $5 billion on or before December 12, 2016, subject to measurement procedures and limitations set forth in the CVR Agreement. The foregoing description of the CVR Agreement does not purport to be complete and is qualified in its entirety by the full text of the CVR Agreement included as Exhibit 4.01.

As of December 31, 2014, the Assets Under Management are approximately $2.6 billion.  As noted above, payment pursuant to the CVRs is triggered if Assets Under Management exceed $5 billion on or prior to December 12, 2016, subject to certain measurement procedures and limitations.  See the definition of AUM Milestone in Exhibit 4.01 for additional information regarding the circumstances that trigger payment pursuant to the CVRs.

Management has determined that the AUM Milestone did not occur during the fourth quarter of 2014.
 

Item 1A. Risk Factors

Please consider this section along with the description of our business in Item 1, the competition section immediately above and AB’s financial information contained in Items 6, 7 and 8. The majority of the risk factors discussed below directly affect AB. These risk factors also affect AB Holding because AB Holding’s principal source of income and cash flow is attributable to its investment in AB. See also “Cautions Regarding Forward-Looking Statements” in Item 7.

Business-related Risks

Our revenues and results of operations depend on the market value and composition of our AUM, which can fluctuate significantly based on various factors, including many factors outside of our control.

We derive most of our revenues from investment advisory and services fees, which typically are calculated as a percentage of the value of AUM as of a specified date, or as a percentage of the value of average AUM for the applicable billing period, and vary with the type of investment service, the size of the account and the total amount of assets we manage for a particular client. The value and composition of our AUM can be adversely affected by several factors, including:

Ÿ Our Investment Performance.  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, and when a prospective client is deciding whether to invest with us. Poor investment performance, both in absolute terms and/or relative to peers and stated benchmarks, may result in clients withdrawing assets and in prospective clients choosing to invest with competitors.

Ÿ Market Factors. Reductions in stock and/or bond prices, such as those we experienced at times during 2014, particularly during early October 2014 (largely due to investor anxiety over geopolitical and global economic factors, including the direction of interest rates), cause the value of our AUM to decrease and may cause our clients to redeem their investments, which would further reduce our AUM and revenues. Additionally, increases in interest rates, particularly if rapid, as well as uncertainty pertaining to the future direction of interest rates, likely would decrease the total return of many bond investments due to lower market valuations of existing bonds. These factors could have a significant adverse effect on our revenues and results of operations as our AUM in fixed income investments have become a larger component of our AUM.

Ÿ Client Preferences. Generally, our clients may withdraw their assets at any time and on short notice. Also, changing market dynamics and investment trends, particularly with respect to sponsors of defined benefits plans choosing to invest in less risky investments, may reduce interest in some of the investment products we offer, and/or clients and prospects may seek investment products that we may not currently offer, such as retail money market funds. Loss of, or decreases in, AUM will reduce our investment actively managed advisory and services fees and revenues.

Ÿ Investing Trends. Our fee rates vary significantly among the various investment products and services we offer to our clients. For example, we generally earn higher fees from assets invested in our actively-managed equity services than in our actively-managed fixed income services or passive services. Also, we often earn higher fees from global and international services than we do from U.S. services (see “Net Revenues” in Item 7 for additional information regarding our fee rates). If our clients choose to invest in actively managed fixed income services and/or passive services, which generally have lower fees, instead of actively managed equity services, which generally have higher fees, our investment advisory and services fees and revenues will decline.

Ÿ Service Changes. We may be required to reduce our fee levels, restructure the fees we charge or adjust the services we offer to our clients because of, among other things, regulatory initiatives (whether industry-wide or specifically targeted), court decisions and competitive considerations. A reduction in fees would reduce our revenues.

A decrease in the value of our AUM, or a decrease in the amount of AUM we manage, or an adverse mix shift in our AUM, would adversely affect our investment advisory and services fees and revenues. A reduction in revenues, without a commensurate reduction in expenses, would adversely affect our results of operations.

Our reputation could suffer if we are unable to deliver consistent, competitive investment performance.

Our business is based on the trust and confidence of our clients. Damage to our reputation can reduce substantially our AUM and impair our ability to maintain or grow our business.

Maintaining adequate liquidity for our general business needs depends on certain factors, including operating cash flows and our access to credit on reasonable terms.

Our financial condition is dependent on our cash flow from operations, which is subject to the performance of the capital markets, our ability to maintain and grow AUM and other factors beyond our control. Our ability to issue public or private debt on reasonable terms may be limited by adverse market conditions, our profitability, our creditworthiness as perceived by lenders and changes in government regulations, including tax rates and interest rates. Furthermore, our access to credit on reasonable terms is partially dependent on our firm’s credit ratings.
 
Standard & Poor’s Rating Service, Moody’s Investors Service, Inc. and Fitch Ratings each affirmed AB’s long-term and short-term credit ratings in 2014 and also affirmed its stable outlook.  Future changes in our credit ratings are possible and any downgrade to our ratings is likely to increase our borrowing costs and limit our access to the capital markets. If this occurs, we may be forced to incur unanticipated costs or revise our strategic plans, which could have a material adverse effect on our financial condition, results of operations and business prospects.
 
Our business is dependent on investment advisory agreements with clients, and selling and distribution agreements with various financial intermediaries and consultants, which, generally, 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 wealth clients, and selling and distribution agreements with financial intermediaries that distribute AB Funds. Generally, the investment management agreements (and other arrangements), including our agreements with AXA and its subsidiaries (our largest client), are terminable at any time or upon relatively short notice by either party. The investment management agreements pursuant to which we manage the U.S. Funds must be renewed and approved by the Funds’ boards of directors annually. A significant majority of the directors are independent. Consequently, there can be no assurance that the board of directors of each fund will approve the fund’s investment management agreement each year, or will not condition its approval on revised terms that may be adverse to us. In addition, investors in AB 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 results of operations and business prospects.

Similarly, the selling and distribution agreements with securities firms, brokers, banks and other financial intermediaries (including our agreement with UBS AG, with respect to which UBS AG was responsible for approximately 11% of our open-end AB Fund sales in 2014) are terminable by either party upon notice (generally 30 days) and do not obligate the financial intermediary to sell any specific amount of fund shares. These intermediaries generally offer their clients investment products that compete with our products. In addition, certain institutional investors rely on consultants to advise them about choosing an investment adviser and, in previous years, some of our equities services have not been considered among the best choices by consultants. As a result, a number of investment consultants advised their clients to move their assets invested with us to other investment advisers, which contributed to significant net outflows in such years. This trend may continue.

Also, our Private Wealth Services rely 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 results of operations and business prospects.

We may be unable to continue to attract, motivate and retain key personnel, and the cost to retain key personnel could put pressure on our adjusted operating margin.

Our business depends on our ability to attract, motivate and retain 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 advisors, traders, executive officers and other professionals is extremely competitive and is characterized by frequent movement of these investment professionals among different firms. Portfolio managers, financial advisors and executive officers often maintain strong, personal relationships with investors in our products and other members of the business community so their departure may cause us to lose client accounts or result in fewer opportunities to win new business, either of which could have a material adverse effect on our results of operations and business prospects.

Also, a decline in revenues may limit our ability to pay our employees at competitive levels, and maintaining (or increasing) compensation without a revenue increase, in order to retain key personnel, may adversely affect our adjusted operating margin. As a result, we will continue to be vigilant about aligning our cost structure (including headcount) with our revenue base. For additional information regarding our compensation practices, see "Compensation Discussion and Analysis" in Item 11.

Performance-based fee arrangements with our clients cause greater fluctuations in our net revenues.

We sometimes charge our clients performance-based fees, whereby we charge a base advisory fee and are eligible to earn an additional performance-based fee or incentive allocation that is calculated as either a percentage of absolute investment results or a percentage of investment results in excess of a stated benchmark over a specified period of time. Some performance-based fees include a high-watermark provision, which generally provides that if a client account underperforms relative to its performance target (whether in absolute terms or relative to a specified benchmark), it must gain back such underperformance before we can collect future performance-based fees. Therefore, if we fail to achieve the performance target for a particular period, we will not earn a performance-based fee for that period and, for accounts with a high-watermark provision, our ability to earn future performance-based fees will be impaired.
 
We are eligible to earn performance-based fees on approximately 10% of the assets we manage for institutional clients, approximately 4% of the assets we manage for private wealth clients and approximately 1% of the assets we manage for retail clients (in total, approximately 6% of our AUM). If the percentage of our AUM subject to performance-based fees grows, seasonality and volatility of revenue and earnings are likely to become more significant. Our performance-based fees in 2014, 2013 and 2012 were $53.2 million, $53.6 million and $66.6 million (including $39.6 million pertaining to winding up the Public-Private Investment Program (“PPIP”) fund we managed; see “Net Revenues” in Item 7), respectively.
 
An impairment of goodwill may occur.

Determining whether an impairment of the goodwill asset exists requires management to exercise significant judgment. In addition, to the extent that securities valuations are depressed for prolonged periods of time and market conditions deteriorate, or if we experience significant net redemptions, our AUM, revenues, profitability and unit price may be adversely affected. Although the price of an AB Holding Unit is just one factor in the calculation of fair value, if current AB Holding Unit price levels decline significantly, reaching the conclusion that fair value exceeds carrying value will, over time, become more difficult. In addition, control premiums, industry earnings multiples and discount rates are impacted by economic conditions. As a result, subsequent impairment tests may occur more frequently and be based on more negative assumptions and future cash flow projections, and may result in an impairment of goodwill. An impairment may result in a material charge to our earnings. For additional information about our impairment testing, see Item 7.

We may engage in strategic transactions that could pose risks.

As part of our business strategy, we consider potential strategic transactions, including acquisitions, dispositions, consolidations, joint ventures and similar transactions, some of which may be material. These transactions, if undertaken, may involve a number of risks and present financial, managerial and operational challenges, including:

Ÿ adverse effects on our earnings if acquired intangible assets or goodwill become impaired;
Ÿ existence of unknown liabilities or contingencies that arise after closing; and
Ÿ potential disputes with counterparties.

Acquisitions also pose the risk that any business we acquire may lose customers or employees or could underperform relative to expectations. Additionally, the acquisition of investment personnel poses the risk that we may lose the AUM we expected to manage, which could adversely affect our results of operations. Furthermore, strategic transactions may require us to increase our leverage or, if we issue AB Units or AB Holding Units to fund an acquisition, would dilute the holdings of our existing Unitholders.

Because many of our subsidiary operations are located outside of the United States and have functional currencies other than the U.S. dollar, changes in exchange rates to the U.S. dollar affect our reported financial results from one period to the next.

Although significant portions of our net revenues and expenses, as well as our AUM, presently are derived from the United States, we have subsidiaries outside of the United States with functional currencies other than the U.S. dollar. As a result, fluctuations in exchange rates to the U.S. dollar affect our reported financial results from one period to the next. For example, the recent significant appreciation in the value of the U.S. dollar has reduced the value of our revenues generated in other currencies. We may not be successful in our efforts to hedge our exposure to such fluctuations, which could have a negative effect on our reported financial results.

Our seed capital investments are subject to market risk. While we enter into various futures, forward and swap contracts to economically hedge many of these investments, we also may be exposed to market risk and credit-related losses in the event of non-performance by counterparties to these derivative instruments.

We have a seed investment program for the purpose of sponsoring new products. As our new product launches have increased in recent years, so too has our use of seed capital for investment purposes. These seed capital investments are subject to market risk. Our risk management team oversees a seed hedging program that attempts to minimize this risk, subject to practical and cost considerations. Also, not all seed investments are deemed appropriate to hedge, and in those cases we are exposed to market risk. As a result, volatility in the capital markets may cause significant changes in our period-to-period financial and operating results.

We use various derivative instruments, including futures, forward and swap contracts, in conjunction with our seed hedging program.  While in most cases broad market risks are hedged, our hedges are imperfect and some market risk remains. In addition, our use of derivatives results in counterparty risk (i.e., the risk that we may be exposed to credit-related losses in the event of non-performance by counterparties to these derivative instruments), regulatory risk (e.g., short selling restrictions) and cash/synthetic basis risk (i.e., the risk that the underlying positions do not move identically to the related derivative instruments).
 
The revenues generated by Bernstein Research Services may be adversely affected by circumstances beyond our control, including declines in brokerage transaction rates and declines in global market volumes.

Electronic, or “low-touch”, trading approaches represent a significant percentage of buy-side trading activity and produce transaction fees for execution-only services that are a small fraction of traditional full service fee rates. As a result, blended pricing for the industry and SCB is lower now than it was historically, and price declines may continue. In addition, fee rates charged by SCB and other brokers for traditional brokerage services have historically experienced price pressure, and we expect these trends to continue. Also, while increases in transaction volume and market share often can offset decreases in rates, this may not continue. For example, global market volumes have declined in recent years, and we expect this may continue, especially considering recent increases in passive investing.
 
The individuals, counterparties or issuers on whom we rely to perform services for us or our clients may be unable or unwilling to honor their contractual obligations to us.

We rely on various third party counterparties and other vendors to fulfill their obligations to us, whether specified by contract, course of dealing or otherwise. Default rates, downgrades and disputes with counterparties as to the valuation of collateral increase significantly in times of market stress. Furthermore, disruptions in the financial markets and other economic challenges, like those presented by market volatility in October 2014, may cause our counterparties and other vendors to experience significant cash flow problems or even render them insolvent, which may expose us to significant costs.

We may not accurately value the securities we hold on behalf of our clients or our company investments.

In accordance with applicable regulatory requirements, contractual obligations or client direction, we employ procedures for the pricing and valuation of securities and other positions held in client accounts or for company investments. We have established a Valuation Committee, composed of senior officers and employees, which oversees pricing controls and valuation processes. If market quotations for a security are not readily available, the Valuation Committee determines a fair value for the security.

Extraordinary volatility in financial markets, significant liquidity constraints or our failure to adequately consider one or more factors when fair valuing a security based on information with limited market observability could result in our failing to properly value securities we hold for our clients or investments accounted for on our balance sheet. Improper valuation likely would result in our basing fee calculations on inaccurate AUM figures, our striking incorrect net asset values for company-sponsored mutual funds or hedge funds or, in the case of company investments, our inaccurately calculating and reporting our financial condition and operating results. Although the overall percentage of our AUM that we fair value based on information with limited market observability is not significant, inaccurate fair value determinations can harm our clients, create regulatory issues and damage our reputation.

We may not have sufficient information to confirm or review the accuracy of valuations provided to us by underlying external managers for the funds in which certain of our alternative investment products invest.

Certain of our alternative investment services invest in funds managed by external managers (“External Managers”) rather than investing directly in securities and other instruments. As a result, our abilities will be limited with regard to (i) monitoring such investments, (ii) regularly obtaining complete, accurate and current information with respect to such investments and (iii) exercising control over such investments. Accordingly, we may not have sufficient information to confirm or review the accuracy of valuations provided to us by External Managers. In addition, we will be required to rely on External Managers’ compliance with any applicable investment guidelines and restrictions. Any failure of an External Manager to operate within such guidelines or to provide accurate information with respect to the investment could subject our alternative investment products to losses and cause damage to our reputation.
 
The quantitative models we use in certain of our investment services may contain errors, resulting in imprecise risk assessments and unintended output.

We use quantitative models in a variety of our investment services, generally in combination with fundamental research. Our quantitative models are validated by senior quantitative professionals. We have a Model Risk Working Group to formalize and oversee a quantitative model governance framework, including minimum validation standards. However, due to the complexity of such models, it is possible that errors in the models could exist and our controls could fail to detect such errors. Failure to detect errors could result in client losses and damage to our reputation.

We may not always successfully manage actual and potential conflicts of interest that arise in our business.

Increasingly, we must manage actual and 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. Failure to adequately address potential conflicts of interest could adversely affect our reputation, results of operations and business prospects.
 
We have procedures and controls that are designed to identify and mitigate conflicts of interest, including those designed to prevent the improper sharing of information. However, appropriately managing conflicts of interest is complex. 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 regulatory enforcement actions.

Unpredictable events, including natural disaster, dangerous weather conditions, technology failure, terrorist attack and political unrest, may adversely affect our ability to conduct business.

War, terrorist attack, political unrest in the Middle East, the Pacific Rim and elsewhere, power failure, climate change, natural disaster and rapid spread of infectious diseases could interrupt our operations by:
 
Ÿ causing disruptions in global economic conditions, thereby decreasing investor confidence and making investment products generally less attractive;
Ÿ inflicting loss of life;
Ÿ triggering massive technology failures or delays; and
Ÿ requiring substantial capital expenditures and operating expenses to remediate damage and restore operations.

Despite the contingency plans and facilities we have in place, including system security measures, information back-up and disaster recovery processes, 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 we may use 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. Furthermore, unauthorized access to our systems as a result of a security breach, the failure of our systems, or the loss of data could give rise to legal proceedings or regulatory penalties under laws protecting the privacy of personal information, disrupt operations, and damage our reputation.

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 financial condition, results of operations and business prospects. In addition, our property and business interruption insurance may not be adequate to compensate us for all losses, failures, or breaches that may occur.

Technology failures can significantly constrain our operations and result in significant time and expense to remediate, whether caused by “cyber attack”, another type of security breach or inadvertent system error.

We are highly dependent on software and related technologies throughout our business, including both proprietary systems and those provided by outside vendors. We use our technology to, among other things, obtain securities pricing information, process client transactions, and provide reports and other services to our clients. Although we take protective measures, including measures to effectively secure information through system security technology and established and tested business continuity plans, we may experience system delays and interruptions as a result of natural disasters, power failures, acts of war (cyber or conventional) and third-party failures. We cannot predict with certainty all of the adverse effects that could result from our failure, or the failure of a third party, to efficiently address and resolve these delays and interruptions. 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, reputational damage, 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 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. Although we take protective measures, our systems still could be vulnerable to cyber attack or other forms of unauthorized access (including computer viruses) that have a security impact, such as an authorized employee or vendor inadvertently or intentionally causing us to release confidential or proprietary information. Such disclosure could, among