UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
 
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Fiscal Year Ended December 31, 2013
 
OR
 
o 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 x  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 x
 
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 x  No o
 
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 x  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, 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  x
Accelerated filer   o
Non-accelerated filer  o
Smaller reporting company   o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes ¨  No x
 
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, 2013 was approximately $2.1 billion.
 
The number of units representing assignments of beneficial ownership of limited partnership interests outstanding as of December 31, 2013 was 96,028,494. (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
ii
 
 
 
Part I
 
 
Item 1.
1
Item 1A.
15
Item 1B.
22
Item 2.
22
Item 3.
23
Item 4.
23
 
 
 
Part II
 
 
Item 5.
24
Item 6.
26
 
26
 
27
Item 7.
28
 
28
 
29
 
31
Item 7A.
51
 
51
 
51
Item 8.
53
 
58
 
67
Item 9.
106
Item 9A.
106
Item 9B.
106
 
 
 
Part III
 
 
Item 10.
107
Item 11.
116
Item 12.
133
Item 13.
138
Item 14.
140
 
 
 
Part IV
 
 
Item 15.
141
144

i

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

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

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 Western Europe, North America and the Asia/Pacific regions and, to a lesser extent, in other regions including the Middle East and Africa. AXA has five operating business segments: life and savings, property and casualty, international insurance, asset management and other financial services.

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

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

Bernstein Transaction” – on October 2, 2000, AllianceBernstein’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 AllianceBernstein and Holding and a subsidiary of AXA Equitable, and, where appropriate, ACMC, LLC, its predecessor.

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

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

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.

SEC” – the United States Securities and Exchange Commission.

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

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

PART I

Item  1. Business

The words “we” and “our” in this Form 10-K refer collectively to Holding and AllianceBernstein and its subsidiaries, or to their officers and employees. Similarly, the words “company” and “firm” refer to both Holding and AllianceBernstein. Where the context requires distinguishing between Holding and AllianceBernstein, 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, 2013, Brazil, Chile, China, Columbia, 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 Client, and our sell-side business, Bernstein Research Services.  See “Distribution Channels” in this Item 1 for additional information.

As of December 31, 2013, 2012 and 2011, our client assets under management (“AUM”) were $450 billion, $430 billion and $406 billion, respectively, and our net revenues for the years ended December 31, 2013, 2012 and 2011 were $2.9 billion, $2.7 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%, 25% and 23% of our AUM as of December 31, 2013, 2012 and 2011, respectively, and we earned approximately 5%, 4% and 4% of our net revenues from services we provided to our affiliates in 2013, 2012 and 2011, 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 principally 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 alternatives. The breadth of our research expertise is reflected in the range of products and investment solutions we offer to our clients, which we discuss below in “Investment Services”.

Investment Services

Our investment services include:

· Actively-managed equity strategies, including style-pure (e.g., value and growth) and absolute return-focused strategies;
· Actively-managed traditional and unconstrained fixed income strategies, including taxable and tax-exempt strategies;
· Passive management, including index and enhanced index strategies;
· Alternative investments, including hedge funds, fund of funds and private equity (e.g., direct real estate investing); and
· Multi-asset services and solutions, including dynamic asset allocation, customized target-date and target-risk funds, and other strategies tailored to help clients meet their investment goals.

Our services employ 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, 2013, 2012 and 2011 were as follows:

By Client Domicile ($ in billions):
 
 
By Investment Service ($ in billions):
 
Distribution Channels

Institutions

To our institutional 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, all of 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 31%, 35% and 31% of our institutional AUM as of December 31, 2013, 2012 and 2011, respectively, and approximately 22%, 17% and 13% of our institutional revenues for 2013, 2012 and 2011, 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, 2013.

2

As of December 31, 2013, 2012 and 2011, Institutional Services represented approximately 50%, 51% and 55%, respectively, of our AUM, and the fees we earned from providing these services represented approximately 15%, 18% and 22% of our net revenues for 2013, 2012 and 2011, respectively. Our institutional AUM and revenues are as follows:

Institutional Services Assets Under Management
(by Investment Service)

 
 
December 31,
   
% Change
 
 
 
2013
   
2012
   
2011
     
2013-12
     
2012-11
 
 
 
(in millions)
                 
 
 
   
   
                 
Equity Actively Managed:
 
   
   
                 
U.S.
 
$
8,438
   
$
5,748
   
$
12,855
     
46.8
%
   
(55.3
)%
Global & Non-US
   
21,100
     
25,797
     
44,637
     
(18.2
)
   
(42.2
)
Total
   
29,538
     
31,545
     
57,492
     
(6.4
)
   
(45.1
)
 
                                       
Equity Passively Managed(1):
                                       
U.S.
   
14,111
     
11,494
     
11,050
     
22.8
     
4.0
 
Global & Non-US
   
6,555
     
6,131
     
3,432
     
6.9
     
78.6
 
Total
   
20,666
     
17,625
     
14,482
     
17.3
     
21.7
 
 
                                       
Total Equity
   
50,204
     
49,170
     
71,974
     
2.1
     
(31.7
)
 
                                       
Fixed Income Taxable:
                                       
U.S.
   
81,823
     
90,727
     
83,426
     
(9.8
)
   
8.8
 
Global & Non-US
   
58,647
     
53,841
     
44,866
     
8.9
     
20.0
 
Total
   
140,470
     
144,568
     
128,292
     
(2.8
)
   
12.7
 
 
                                       
Fixed Income Tax-Exempt:
                                       
U.S.
   
1,611
     
1,385
     
1,046
     
16.3
     
32.4
 
Global & Non-US
   
     
     
     
     
 
Total
   
1,611
     
1,385
     
1,046
     
16.3
     
32.4
 
 
                                       
Fixed Income Passively Managed(1):
                                       
U.S.
   
63
     
62
     
     
1.6
     
 
Global & Non-US
   
194
     
334
     
238
     
(41.9
)
   
40.3
 
Total
   
257
     
396
     
238
     
(35.1
)
   
66.4
 
 
                                       
Total Fixed Income
   
142,338
     
146,349
     
129,576
     
(2.7
)
   
12.9
 
 
                                       
Other(2):
                                       
U.S.
   
1,211
     
471
     
2,240
     
157.1
     
(79.0
)
Global & Non-US
   
32,237
     
23,829
     
20,084
     
35.3
     
18.6
 
Total
   
33,448
     
24,300
     
22,324
     
37.6
     
8.9
 
 
                                       
Total:
                                       
U.S.
   
107,257
     
109,887
     
110,617
     
(2.4
)
   
(0.7
)
Global & Non-US
   
118,733
     
109,932
     
113,257
     
8.0
     
(2.9
)
Total
 
$
225,990
   
$
219,819
   
$
223,874
     
2.8
     
(1.8
)
 
                                       
Affiliated
 
$
69,619
   
$
77,569
   
$
69,071
     
(10.2
)
   
12.3
 
Non-affiliated
   
156,371
     
142,250
     
154,803
     
9.9
     
(8.1
)
Total
 
$
225,990
   
$
219,819
   
$
223,874
     
2.8
     
(1.8
)
 

(1) Includes index and enhanced index services.
(2) Includes asset allocation services and certain other alternative investments.

3

Revenues from Institutional Services
(by Investment Service)

 
 
Years Ended December 31,
   
% Change
 
 
 
2013
   
2012
   
2011
     
2013-12
     
2012-11
 
 
 
(in thousands)
                 
Equity Actively Managed:
 
   
   
                 
U.S.
 
$
48,327
   
$
43,400
   
$
71,657
     
11.4
%
   
(39.4
)%
Global & Non-US
   
98,553
     
143,163
     
307,707
     
(31.2
)
   
(53.5
)
Total
   
146,880
     
186,563
     
379,364
     
(21.3
)
   
(50.8
)
 
                                       
Equity Passively Managed(1):
                                       
U.S.
   
2,720
     
2,334
     
2,139
     
16.5
     
9.1
 
Global & Non-US
   
5,359
     
5,533
     
5,212
     
(3.1
)
   
6.2
 
Total
   
8,079
     
7,867
     
7,351
     
2.7
     
7.0
 
 
                                       
Total Equity
   
154,959
     
194,430
     
386,715
     
(20.3
)
   
(49.7
)
 
                                       
Fixed Income Taxable:
                                       
U.S.
   
96,138
     
95,139
     
87,388
     
1.1
     
8.9
 
Global & Non-US
   
117,228
     
105,139
     
96,756
     
11.5
     
8.7
 
Total
   
213,366
     
200,278
     
184,144
     
6.5
     
8.8
 
 
                                       
Fixed Income Tax-Exempt:
                                       
U.S.
   
1,992
     
1,543
     
1,847
     
29.1
     
(16.5
)
Global & Non-US
   
     
     
     
     
 
Total
   
1,992
     
1,543
     
1,847
     
29.1
     
(16.5
)
 
                                       
Fixed Income Passively Managed(1):
                                       
U.S.
   
76
     
78
     
83
     
(2.6
)
   
(6.0
)
Global & Non-US
   
227
     
54
     
122
     
320.4
     
(55.7
)
Total
   
303
     
132
     
205
     
129.5
     
(35.6
)
 
                                       
Fixed Income Servicing(2):
                                       
U.S.
   
14,038
     
8,911
     
17,346
     
57.5
     
(48.6
)
Global & Non-US
   
1,602
     
4,370
     
948
     
(63.3
)
   
361.0
 
Total
   
15,640
     
13,281
     
18,294
     
17.8
     
(27.4
)
 
                                       
Total Fixed Income
   
231,301
     
215,234
     
204,490
     
7.5
     
5.3
 
 
                                       
Other(3):
                                       
U.S.
   
11,952
     
46,400
     
13,511
     
(74.2
)
   
243.4
 
Global & Non-US
   
39,896
     
28,651
     
10,813
     
39.2
     
165.0
 
Total
   
51,848
     
75,051
     
24,324
     
(30.9
)
   
208.5
 
 
                                       
Total Investment Advisory and Services Fees:
                                       
U.S.
   
175,243
     
197,805
     
193,971
     
(11.4
)
   
2.0
 
Global and International
   
262,865
     
286,910
     
421,558
     
(8.4
)
   
(31.9
)
 
   
438,108
     
484,715
     
615,529
     
(9.6
)
   
(21.3
)
Distribution Revenues
   
305
     
574
     
662
     
(46.9
)
   
(13.3
)
Shareholder Servicing Fees
   
533
     
362
     
596
     
47.2
     
(39.3
)
Total
 
$
438,946
   
$
485,651
   
$
616,787
     
(9.6
)
   
(21.3
)
 
                                       
Affiliated
 
$
96,729
   
$
82,930
   
$
82,965
     
16.6
     
 
Non-affiliated
   
342,217
     
402,721
     
533,822
     
(15.0
)
   
(24.6
)
Total
 
$
438,946
   
$
485,651
   
$
616,787
     
(9.6
)
   
(21.3
)
 

(1) Includes index and enhanced index services.
(2) Fixed Income Servicing includes advisory-related services fees not based on AUM, including derivative transaction fees, capital purchase program related advisory services and other fixed income advisory services.
(3) Includes asset allocation services and certain other alternative services.
4

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, “AllianceBernstein 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 AllianceBernstein’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 AllianceBernstein 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 23%, 20% and 20% of our retail AUM as of December 31, 2013, 2012 and 2011, respectively, and approximately 2%, 3% and 3% of our retail net revenues for 2013, 2012 and 2011, respectively.

Certain subsidiaries of AXA, including AXA Advisors, LLC (“AXA Advisors”), a subsidiary of AXA Financial, were responsible for approximately 2%, 4% and 1% of total sales of shares of open-end AllianceBernstein Funds in 2013, 2012 and 2011, respectively. During 2013, UBS AG was responsible for approximately 12% of our open-end AllianceBernstein Fund sales. Neither our affiliates nor UBS AG are 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 other entity accounted for 10% or more of our open-end AllianceBernstein 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, 2013, retail U.S. Fund AUM were approximately $47 billion, or 31% of retail AUM, as compared to $45 billion, or 31%, as of December 31, 2012, and $41 billion, or 36%, as of December 31, 2011. Non-U.S. Fund AUM, as of December 31, 2013, totaled $56 billion, or 36% of retail AUM, as compared to $60 billion, or 42%, as of December 31, 2012, and $35 billion, or 31%, as of December 31, 2011.

5

As of December 31, 2013, 2012 and 2011, our Retail Services represented approximately 34%, 34% and 28% of our AUM, and the fees we earned from providing these services represented approximately 47%, 44% and 40% of our net revenues for the years ended December 31, 2013, 2012 and 2011, respectively. Our retail AUM and revenues are as follows:

 Retail Services Assets Under Management
(by Investment Service)

 
 
December 31,
   
% Change
 
 
 
2013
   
2012
   
2011
     
2013-12
     
2012-11
 
 
 
(in millions)
                 
 
 
   
   
                 
Equity Actively Managed:
 
   
   
                 
U.S.
 
$
27,656
   
$
17,738
   
$
16,328
     
55.9
%
   
8.6
%
Global & Non-US
   
13,997
     
16,415
     
19,435
     
(14.7
)
   
(15.5
)
Total
   
41,653
     
34,153
     
35,763
     
22.0
     
(4.5
)
 
                                       
Equity Passively Managed(1):
                                       
U.S.
   
21,514
     
16,716
     
15,705
     
28.7
     
6.4
 
Global & Non-US
   
6,615
     
5,491
     
2,933
     
20.5
     
87.2
 
Total
   
28,129
     
22,207
     
18,638
     
26.7
     
19.1
 
 
                                       
Total Equity
   
69,782
     
56,360
     
54,401
     
23.8
     
3.6
 
 
                                       
Fixed Income Taxable:
                                       
U.S.
   
4,597
     
2,738
     
2,438
     
67.9
     
12.3
 
Global & Non-US
   
56,304
     
65,990
     
42,829
     
(14.7
)
   
54.1
 
Total
   
60,901
     
68,728
     
45,267
     
(11.4
)
   
51.8
 
 
                                       
Fixed Income Tax-Exempt:
                                       
U.S.
   
8,243
     
8,532
     
6,384
     
(3.4
)
   
33.6
 
Global & Non-US
   
14
     
     
     
     
 
Total
   
8,257
     
8,532
     
6,384
     
(3.2
)
   
33.6
 
 
                                       
Fixed Income Passively Managed(1):
                                       
U.S.
   
4,531
     
2,385
     
1,422
     
90.0
     
67.7
 
Global & Non-US
   
4,179
     
4,730
     
3,082
     
(11.6
)
   
53.5
 
Total
   
8,710
     
7,115
     
4,504
     
22.4
     
58.0
 
 
                                       
Total Fixed Income
   
77,868
     
84,375
     
56,155
     
(7.7
)
   
50.3
 
 
                                       
Other(2):
                                       
U.S.
   
3,208
     
1,981
     
968
     
61.9
     
104.6
 
Global & Non-US
   
2,132
     
1,676
     
1,081
     
27.2
     
55.0
 
Total
   
5,340
     
3,657
     
2,049
     
46.0
     
78.5
 
 
                                       
Total:
                                       
U.S.
   
69,749
     
50,090
     
43,245
     
39.2
     
15.8
 
Global & Non-US
   
83,241
     
94,302
     
69,360
     
(11.7
)
   
36.0
 
Total
 
$
152,990
   
$
144,392
   
$
112,605
     
6.0
     
28.2
 
 
                                       
Affiliated
 
$
35,194
   
$
28,535
   
$
22,561
     
23.3
     
26.5
 
Non-affiliated
   
117,796
     
115,857
     
90,044
     
1.7
     
28.7
 
Total
 
$
152,990
   
$
144,392
   
$
112,605
     
6.0
     
28.2
 
 

(1) Includes index and enhanced index services.
(2) Includes asset allocation services and certain other alternative investments.

6

Revenues from Retail Services
(by Investment Service)
 
 
 
Years Ended December 31,
   
% Change
 
 
 
2013
   
2012
   
2011
     
2013-12
     
2012-11
 
 
 
(in thousands)
                 
 
 
   
   
                 
Equity Actively Managed:
 
   
   
                 
U.S.
 
$
134,312
   
$
92,422
   
$
93,664
     
45.3
%
   
(1.3
)%
Global & Non-US
   
96,337
     
114,221
     
164,776
     
(15.7
)
   
(30.7
)
Total
   
230,649
     
206,643
     
258,440
     
11.6
     
(20.0
)
 
                                       
Equity Passively Managed(1):
                                       
U.S.
   
12,570
     
13,862
     
12,950
     
(9.3
)
   
7.0
 
Global & Non-US
   
8,298
     
3,780
     
1,898
     
119.5
     
99.2
 
Total
   
20,868
     
17,642
     
14,848
     
18.3
     
18.8
 
 
                                       
Total Equity
   
251,517
     
224,285
     
273,288
     
12.1
     
(17.9
)
 
                                       
Fixed Income Taxable:
                                       
U.S.
   
16,074
     
13,252
     
10,715
     
21.3
     
23.7
 
Global & Non-US
   
483,171
     
405,209
     
327,433
     
19.2
     
23.8
 
Total
   
499,245
     
418,461
     
338,148
     
19.3
     
23.8
 
 
                                       
Fixed Income Tax-Exempt:
                                       
U.S.
   
35,993
     
28,906
     
22,124
     
24.5
     
30.7
 
Global & Non-US
   
78
     
     
     
     
 
Total
   
36,071
     
28,906
     
22,124
     
24.8
     
30.7
 
 
                                       
Fixed Income Passively Managed(1):
                                       
U.S.
   
5,445
     
3,485
     
1,578
     
56.2
     
120.8
 
Global & Non-US
   
9,012
     
7,389
     
5,210
     
22.0
     
41.8
 
Total
   
14,457
     
10,874
     
6,788
     
33.0
     
60.2
 
 
                                       
Total Fixed Income
   
549,773
     
458,241
     
367,060
     
20.0
     
24.8
 
 
                                       
Other(2):
                                       
U.S.
   
13,879
     
7,829
     
1,457
     
77.3
     
437.3
 
Global & Non-US
   
9,785
     
7,698
     
2,255
     
27.1
     
241.4
 
Total
   
23,664
     
15,527
     
3,712
     
52.4
     
318.3
 
 
                                       
Total Investment Advisory and Services Fees:
                                       
U.S.
   
218,273
     
159,756
     
142,488
     
36.6
     
12.1
 
Global and International
   
606,681
     
538,297
     
501,572
     
12.7
     
7.3
 
 
   
824,954
     
698,053
     
644,060
     
18.2
     
8.4
 
Distribution Revenues
   
461,944
     
406,467
     
356,895
     
13.6
     
13.9
 
Shareholder Servicing Fees
   
89,472
     
88,375
     
91,606
     
1.2
     
(3.5
)
Total
 
$
1,376,370
   
$
1,192,895
   
$
1,092,561
     
15.4
     
9.2
 
 
                                       
Affiliated
 
$
43,264
   
$
31,089
   
$
31,301
     
39.2
     
(0.7
)
Non-affiliated
   
1,333,106
     
1,161,806
     
1,061,260
     
14.7
     
9.5
 
Total
 
$
1,376,370
   
$
1,192,895
   
$
1,092,561
     
15.4
     
9.2
 
 

(1) Includes index and enhanced index services.
(2) Includes asset allocation services and certain other alternative investments.
7

Private Client

To our private 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 Client Services”).

Private client accounts generally are managed pursuant to a written investment advisory agreement among the client, AllianceBernstein and Sanford C. Bernstein & Co., LLC (one of our subsidiaries, “SCB LLC”), which agreement usually is terminable at any time or upon relatively short notice by any party. In general, these agreements may not be assigned without the consent of the client. For information about our private client 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, 2013, 2012 and 2011, Private Client Services represented approximately 16%, 15% and 17%, respectively, of our AUM, and the fees we earned from providing these services represented approximately 20%, 21% and 24% of our net revenues for 2013, 2012 and 2011, respectively. Our private client AUM and revenues are as follows:

Private Client Services Assets Under Management
(by Investment Service)

 
 
December 31,
   
% Change
 
 
 
2013
   
2012
   
2011
     
2013-12
     
2012-11
 
 
 
(in millions)
                 
 
 
   
   
                 
Equity Actively Managed:
 
   
   
                 
U.S.
 
$
21,620
   
$
16,506
   
$
17,626
     
31.0
%
   
(6.4
)%
Global & Non-US
   
15,003
     
13,222
     
13,461
     
13.5
     
(1.8
)
Total
   
36,623
     
29,728
     
31,087
     
23.2
     
(4.4
)
 
                                       
Equity Passively Managed(1):
                                       
U.S.
   
83
     
67
     
57
     
23.9
     
17.5
 
Global & Non-US
   
397
     
371
     
352
     
7.0
     
5.4
 
Total
   
480
     
438
     
409
     
9.6
     
7.1
 
 
                                       
Total Equity
   
37,103
     
30,166
     
31,496
     
23.0
     
(4.2
)
 
                                       
Fixed Income Taxable:
                                       
U.S.
   
7,468
     
8,962
     
9,499
     
(16.7
)
   
(5.7
)
Global & Non-US
   
2,128
     
1,755
     
1,808
     
21.3
     
(2.9
)
Total
   
9,596
     
10,717
     
11,307
     
(10.5
)
   
(5.2
)
 
                                       
Fixed Income Tax-Exempt:
                                       
U.S.
   
18,843
     
20,835
     
22,564
     
(9.6
)
   
(7.7
)
Global & Non-US
   
2
     
     
193
     
     
(100.0
)
Total
   
18,845
     
20,835
     
22,757
     
(9.6
)
   
(8.4
)
 
                                       
Fixed Income Passively Managed(1):
                                       
U.S.
   
11
     
31
     
     
(64.5
)
   
 
Global & Non-US
   
357
     
355
     
112
     
0.6
     
217.0
 
Total
   
368
     
386
     
112
     
(4.7
)
   
244.6
 
 
                                       
Total Fixed Income
   
28,809
     
31,938
     
34,176
     
(9.8
)
   
(6.5
)
 
                                       
Other(2):
                                       
U.S.
   
1,375
     
804
     
367
     
71.0
     
119.1
 
Global & Non-US
   
4,144
     
2,898
     
3,379
     
43.0
     
(14.2
)
Total
   
5,519
     
3,702
     
3,746
     
49.1
     
(1.2
)
 
                                       
Total:
                                       
U.S.
   
49,400
     
47,205
     
50,113
     
4.6
     
(5.8
)
Global & Non-US
   
22,031
     
18,601
     
19,305
     
18.4
     
(3.6
)
Total
 
$
71,431
   
$
65,806
   
$
69,418
     
8.5
     
(5.2
)
 

(1) Includes index and enhanced index services.
(2) Includes asset allocation services and certain other alternative investments.
8

Revenues From Private Client Services
(by Investment Service)
 
 
 
Years Ended December 31,
   
% Change
 
 
 
2013
   
2012
   
2011
     
2013-12
     
2012-11
 
 
 
(in thousands)
                 
 
 
   
   
                 
Equity Actively Managed:
 
   
   
                 
U.S.
 
$
211,926
   
$
209,263
   
$
247,708
     
1.3
%
   
(15.5
)%
Global & Non-US
   
153,064
     
149,732
     
179,274
     
2.2
     
(16.5
)
Total
   
364,990
     
358,995
     
426,982
     
1.7
     
(15.9
)
 
                                       
Equity Passively Managed(1):
                                       
U.S.
   
316
     
65
     
204
     
386.2
     
(68.1
)
Global & Non-US
   
1,799
     
1,666
     
1,323
     
8.0
     
25.9
 
Total
   
2,115
     
1,731
     
1,527
     
22.2
     
13.4
 
 
                                       
Total Equity
   
367,105
     
360,726
     
428,509
     
1.8
     
(15.8
)
 
                                       
Fixed Income Taxable:
                                       
U.S.
   
44,260
     
48,905
     
52,351
     
(9.5
)
   
(6.6
)
Global & Non-US
   
13,029
     
12,319
     
10,748
     
5.8
     
14.6
 
Total
   
57,289
     
61,224
     
63,099
     
(6.4
)
   
(3.0
)
 
                                       
Fixed Income Tax-Exempt:
                                       
U.S.
   
104,867
     
117,035
     
121,021
     
(10.4
)
   
(3.3
)
Global & Non-US
   
18
     
     
     
     
 
Total
   
104,885
     
117,035
     
121,021
     
(10.4
)
   
(3.3
)
 
                                       
Fixed Income Passively Managed(1):
                                       
U.S.
   
88
     
26
     
15
     
238.5
     
73.3
 
Global & Non-US
   
3,105
     
1,184
     
688
     
162.2
     
72.1
 
Total
   
3,193
     
1,210
     
703
     
163.9
     
72.1
 
 
                                       
Total Fixed Income
   
165,367
     
179,469
     
184,823
     
(7.9
)
   
(2.9
)
 
                                       
Other(2):
                                       
U.S.
   
12,699
     
9,593
     
2,727
     
32.4
     
251.8
 
Global & Non-US
   
40,872
     
31,919
     
31,670
     
28.0
     
0.8
 
Total
   
53,571
     
41,512
     
34,397
     
29.0
     
20.7
 
 
                                       
Total Investment Advisory and Services Fees:
                                       
U.S.
   
374,156
     
384,887
     
424,026
     
(2.8
)
   
(9.2
)
Global and International
   
211,887
     
196,820
     
223,703
     
7.7
     
(12.0
)
Total
   
586,043
     
581,707
     
647,729
     
0.7
     
(10.2
)
Distribution Revenues
   
3,175
     
2,447
     
3,165
     
29.8
     
(22.7
)
Shareholder Servicing Fees
   
2,140
     
1,637
     
1,203
     
30.7
     
36.1
 
Total
 
$
591,358
   
$
585,791
   
$
652,097
     
1.0
     
(10.2
)
 

(1) Includes index and enhanced index services.
(2) Includes asset allocation services and certain other alternative investments.
9

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 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 15%, 15% and 16% of our net revenues for the years ended December 31, 2013, 2012 and 2011, 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
 
 
 
2013
   
2012
   
2011
     
2013-12
     
2012-11
 
 
 
(in thousands)
                 
 
 
   
   
                 
Bernstein Research Services
 
$
445,083
   
$
413,707
   
$
437,414
     
7.6
%
   
(5.4
)%
 
Custody

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

Employees

As of December 31, 2013, our firm had 3,295 full-time employees, representing a 0.7% decrease compared to the end of 2012.  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 combination of an “AB” design 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”.

In connection with the WPS Acquisition, we acquired all of the rights and title in, and 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.

AllianceBernstein, Holding, the General Partner and six of our subsidiaries (SCB LLC, AllianceBernstein Global Derivatives Corporation (“Global Derivatives), Alliance Corporate Finance Group Incorporated, WPS, WPS Advisors, Inc. and W.P. Stewart Asset Management Ltd.) are registered with the SEC as investment advisers under the Investment Advisers Act. Also, Holding is an NYSE-listed company and, accordingly, is subject to applicable regulations promulgated by the NYSE. In addition, AllianceBernstein, 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.
10

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 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 AllianceBernstein Investments, Inc. (another of our subsidiaries, “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 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 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

AllianceBernstein, 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 14 insurance policies underwritten by one of AXA’s European insurance subsidiaries, AXA France IARD, that were in-force at times during 2013 (two of which were in-force during the fourth quarter of 2013) potentially come within the scope of the disclosure requirements of the Iran Act. Each of these insurance policies relates 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 IARD is a French company, based in Paris, which is licensed to operate in France. The annual aggregate revenue AXA derived from these 14 policies is approximately $22,000 and the related net profit, which is difficult to calculate with precision, is estimated to be $11,000.

AXA France IARD has ten additional insurance policies that were originally written in previous years that remained in effect throughout 2013 and may require reporting. These policies involve auto or property insurance provided to companies or other entities that may have direct or indirect ties to the Government of Iran, including Iranian entities designated under Executive Orders 13224 and 13382.  The annual aggregate revenue AXA derived from all ten policies is approximately $12,000 and the related net profit, which is difficult to calculate with precision, is estimated to be $6,000.

Also, AXA has informed us that AXA Konzern AG, an AXA European insurance subsidiary, provides property insurance to MCS International GMBH (“MCS”).  MCS was designated a Specially Designated National (“SDN”) with the identifier [IRAN] by the Office of Foreign Assets Control (“OFAC”) during the second quarter of 2013, after the insurance policy had been completed. The premium received by AXA in respect of this insurance policy is approximately $15,000 and the related net profit, which is difficult to calculate with precision, is estimated to be $8,000.

As of the date of this report, AXA France IARD and AXA Konzern AG have taken actions necessary to terminate coverage under all 25 of the above-referenced insurance policies.

Additionally, AXA has reported to us that an insurance policy (“Swiss Policy”) underwritten by another of AXA’s European insurance subsidiaries, AXA Winterthur, that was in-force during the first quarter of 2013 potentially comes within the scope of the disclosure requirements of the Iran Act. AXA Winterthur is a Swiss company, based in Winterthur, Switzerland, and is licensed to operate in Switzerland.
11

The Swiss Policy relates to insurance provided to the International Road Transport Union (“IRU”), a nongovernmental organization based in Geneva which, among other things, acts as the implementing partner of the Transports Internationaux Routiers Customs Transit System (“TIR System”) under mandate of the United Nations. The TIR System is an international harmonized system of customs control that facilitates trade and transport by TIR Carnets, which are customs transit documents used to prove the existence of the international guarantee for duties and taxes for the goods transported under the TIR System, with the IRU guaranteeing payment to the contracting countries. The TIR Convention includes more than 70 contracting countries, including the United States, each member of the European Union and many other countries, including Iran.

During the first quarter of 2013, AXA Winterthur provided global cover to the IRU insuring it against financial losses that the IRU may incur if a carrier fails to pay the duty charges under the terms of a TIR Carnet.  Under this policy, AXA Winterthur guaranteed duty payments on behalf of the IRU to the TIR national transport associations in each of the more than 70 participating countries, which includes Iran’s TIR System national transport association (the Iran Chamber of Commerce Industry Mines and Agriculture). The annual premium received by AXA in respect of this insurance policy, only a small portion of which related to Iran, is approximately $884,000 and the related net profit, which is difficult to calculate with precision, is estimated to be $442,000. AXA Winterthur has restructured coverage under the Swiss Policy to specifically exclude Iran and notified the IRU accordingly.

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. The pension contract remains in place, but AXA CRT is discussing with local authorities its ability to terminate the contract. In 2013, the pension contributions received under this pension contract totaled approximately $7,800 and the related net profit, which is difficult to calculate with precision, is estimated to be $3,900.

The aggregate premium during 2013 for the above-referenced pension contract and 26 insurance policies was approximately $940,800, representing approximately 0.0008% of AXA’s consolidated revenues, which are in excess of $100 billion.  The related net profit, which is difficult to calculate with precision, is estimated to be $470,900, representing approximately 0.008% of AXA’s 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, 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. Unlike Holding Units, AllianceBernstein Units do not trade publicly and are subject to significant restrictions on transfer. The General Partner is the general partner of both AllianceBernstein and Holding.

In October 2000, our two legacy firms, Alliance Capital and Bernstein, combined, bringing together Alliance Capital’s expertise in growth equity and corporate fixed income investing, and its family of retail mutual funds, with Bernstein’s expertise in value equity and tax-exempt fixed income management, and its private client and Bernstein Research Services businesses. For additional details about this business combination, see Note 2 to AllianceBernstein’s consolidated financial statements in Item 8.

12

As of December 31, 2013, the condensed ownership structure of AllianceBernstein is as follows (for a more complete description of our ownership structure, see “Principal Security Holders” in Item 12):
 
 
The ownership of Holding by AllianceBernstein directors, officers and employees decreased to 34.3% as of December 31, 2013 from 42.2% as of December 31, 2012, with a corresponding increase in public ownership. This decrease reflects our retirement, since July 1, 2013, of all unallocated Holding Units in AllianceBernstein’s consolidated rabbi trust (which Holding Units were considered held by directors, officers and employees), partially offset by the Holding Units we newly issued in December 2013 to help fund obligations under our incentive compensation award program (for additional information, see Note 2 in AllianceBernstein’s consolidated financial statements in Item 8).

The General Partner owns 100,000 general partnership units in Holding and a 1% general partnership interest in AllianceBernstein. Including these general partnership interests, AXA, through certain of its subsidiaries (see “Principal Security Holders” in Item 12), had an approximate 63.7% economic interest in AllianceBernstein as of December 31, 2013.

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 AllianceBernstein Partnership Agreement specifically allows AXA and its subsidiaries (other than the General Partner) to compete with AllianceBernstein 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:

· our investment performance for clients;
· our commitment to place the interests of our clients first;
· the quality of our research;
· our ability to attract, motivate and retain highly skilled, and often highly specialized, personnel;
· the array of investment products we offer;
· the fees we charge;
· Morningstar/Lipper rankings for the AllianceBernstein Funds;
· our operational effectiveness;
· our ability to further develop and market our brand; and
· our global presence.
13

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.

Available Information

AllianceBernstein and 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.alliancebernstein.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 AllianceBernstein 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 to this Form 10-K) 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, 2013, the Assets Under Management are approximately $2.2 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 2013.

14

Item 1A.
Risk Factors

Please consider this section along with the description of our business in Item 1, the competition section immediately 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 “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:

· 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.

· Market Factors. Reductions in stock and/or bond prices, such as those we experienced at times during 2013, particularly during June 2013 (largely due to investor anxiety over the direction of interests 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.

· 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 retirement savings, 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 may reduce our investment advisory and services fees and revenues.

· Investing Trends. Our fee rates vary significantly among the various investment products and services we offer to our clients. For example, we often 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). An adverse change in the mix of the services we provide can have a material adverse effect on our investment advisory and services fees and revenues.
 
· 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, can have a material adverse effect on 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 substantially reduce 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.
15

Moody’s Investors Service, Inc. downgraded AllianceBernstein’s long-term credit rating in May 2013 and changed its outlook from negative to stable, while Standard & Poor’s Ratings Service affirmed AllianceBernstein’s long-term credit rating and revised their outlook to stable from negative in June 2013. 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 clients, and selling and distribution agreements with financial intermediaries that distribute AllianceBernstein 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 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 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 12% of our open-end AllianceBernstein Fund sales in 2013) 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 on 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 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 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 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 and other professionals is extremely competitive and is characterized by frequent movement of these investment professionals among different firms. Portfolio managers and financial advisors often maintain strong, personal relationships with their clients so their departure may cause us to lose client accounts, 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 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 absolute 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.
16

We are eligible to earn performance-based fees on approximately 10% of the assets we manage for institutional clients and approximately 3% of the assets we manage for private 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 2013, 2012 and 2011 were $53.6 million, $66.6 million (including $39.6 million pertaining to winding up the PPIP fund, see “Net Revenues” in Item 7), and $16.5 million, 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 a Holding Unit is just one factor in the calculation of fair value, if current 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:

· adverse effects on our earnings if acquired intangible assets or goodwill become impaired;
· existence of unknown liabilities or contingencies that arise after closing; and
· 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 AllianceBernstein Units or 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. 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 hedged and unhedged seed capital investments are subject to market risk. While we enter into various futures, forward and swap contracts to economically hedge certain 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).
17

Despite our efforts to manage exposures from principal positions taken by our sell-side business, these positions are subject to market risk.

Bernstein Research Services may use the firm’s capital to facilitate customer transactions, primarily relating to trading activities in listed options. The resulting principal positions are exposed to market risk. We seek to manage this risk both by engaging in transactions designed to hedge the market risk and by maintaining a risk platform that includes the measurement and monitoring of financial exposures and operational processes. Our ability to manage this risk may be limited, however, by adverse changes in the liquidity of the security or the hedging instrument and in the correlation of price movements between the security and the hedging instrument. Similarly, the risk monitoring and risk mitigation techniques we employ and the related judgments we make cannot anticipate every possible economic and financial circumstance and outcome. Consequently, we may incur losses, which would require us to increase SCB's regulatory capital and could adversely affect our results of operations.

Rates we charge for brokerage transactions have declined significantly over the past decade, and declines may continue. In addition, turmoil in global capital markets and economies has reduced market trading volumes, which may continue into the future. Combined, these two factors may adversely affect Bernstein Research Services revenue.

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 has declined over the past decade. In addition, fee rates charged by SCB and other brokers for traditional brokerage services also have historically experienced price pressure, and we expect these trends to continue. While increases in transaction volume and market share have in the past often offset decreases in rates, this may not continue. Economic and market turmoil in recent years has severely impacted much of SCB’s client base, which in the near-term may adversely affect transaction volume generally.

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 disruption in June 2013, 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 mark