The Lowdown on Alliance Fee Cuts

How will Alliance Capital's(AC) fund fees stack up against the rest of the industry following the company's fee-cut agreement with regulators?

Depending on the asset class, the fee reduction will knock Alliance's fees back in line with industry averages, according to data from Morningstar and Lipper. Alliance agreed last week to a weighted average reduction of 20% on fees for its U.S. long-term open-end retail funds starting Jan. 1, for a minimum of five years.

Under the new fee structure, for instance, in domestic stocks, Alliance's postsettlement expense ratio dropped to 1.48% from 1.85%, putting it in line with the 1.50% Morningstar average for the asset class.

In the case of Alliance's municipal bond funds, the company's postsettlement expense ratio fell to 1.01% from 1.26%, which is 7 basis points below the average for the asset class.

According to Morningstar analyst Dan Culloton, "The importance of the fee reduction will vary from fund to fund. If the cuts turn it from an extraordinarily priced fund to an in-line or lower-priced fund, then it could have an impact going forward."

Nevertheless, when it comes to performance, Culloton says, Alliance has been "spotty at best, particularly in growth funds." Morningstar tells its investors to consider selling AllianceBernstein funds.

Max Rottersman, founder of Fundexpenses.com, a Web site that analyzes mutual fund fees and financials, says the fee reduction of the Alliance settlement shakes up the entire industry. "Alliance is a moving target now. It will be interesting to check back in five years when the fee reduction is over. They may be high again when the industry catches up," says Rottersman.

Alliance also said it doesn't plan to pay a dividend to its shareholders in the fourth quarter. The dividend cancellation is due to the company's announcement that it will take a $140 million pretax charge to its fourth-quarter earnings. The company expects this charge, plus charges taken in the third quarter and the approximately $70 million in fee reductions in 2004, to reduce earnings by 20 cents a share in 2004. (For a previous story on the fund scandal's impact on Alliance's ability to pay dividends, click here.)

The Rundown Here's how Alliance stacks up against industry averages before and after the company's fee cut
Broad Asset Class	Alliance Average Expense Ratio	Alliance Expense Ratio After Fee Cut	Industry Average for Broad Asset Class
Domestic Stock	1.85%	1.48%	1.50%
International Stock	2.43	1.94	1.86
Municipal Bond	1.26	1.01	1.08
Taxable Bond	1.59	1.27	1.13
Source: Morningstar

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