Affiliated Managers Group Annual Report 2007

FY2007 Annual Report · Affiliated Managers Group
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Affiliated
Managers
Group, Inc.

Annual 
Repor t
200 7

Affiliated Managers Group, Inc. (NYSE: AMG) is an
asset management company which operates through a
diverse group of high quality boutique asset
management ﬁrms (its “Afﬁliates”). AMG’s unique
partnership approach with its Afﬁliates preserves the
entrepreneurial orientation that distinguishes the most
successful investment management ﬁrms. AMG
promotes the continued growth and strong performance
of its Afﬁliates by:

• Maintaining and enhancing Afﬁliate managers’ equity

incentives in their ﬁrms;

• Preserving each Afﬁliate’s distinct culture and

investment focus; and

• Leveraging AMG’s scale to expand the product

offerings and distribution capabilities of its Afﬁliates,
and to provide its Afﬁliates access to the highest quality
operations, compliance and technology resources.

AMG seeks to achieve earnings growth through the
internal growth of its Afﬁliates, development initiatives
designed to enhance its Afﬁliates’ businesses, and
investments in new Afﬁliates. AMG’s Afﬁliates
collectively manage approximately $275 billion (as of
December 31, 2007) in more than 300 investment
products across the institutional, mutual fund and high
net worth distribution channels for investors around the
world. AMG has achieved strong long-term growth in
earnings, with compound annual growth in Cash
Earnings Per Share of 21 percent since its initial 
public offering in 1997.

Contents
Financial Highlights and Quarterly Earnings 
Letter to Shareholders 
AMG Overview 
Financial Information 
Endnotes 
Shareholder Information 

1
2
8
29
87
88

Unless otherwise noted, data presented is as of December 31, 2007.

F i n a n c i a l   H i g h l i g h t s

(in millions, except as indicated and per share data)

Operating Results

Revenue

Net Income

Cash Net Income(1)

EBITDA(2)

Earnings Per Share – diluted

Cash Earnings Per Share – diluted(3)

Balance Sheet Data

Total Assets

Senior Indebtedness

Mandatory Convertible Securities

Junior Convertible Securities

Stockholders’ Equity

Other Financial Data

2005

916.5

119.1

186.1

267.5

2.81

4.85

$

$

Years ended December 31, 

2006

2007

$ 1,170.4

$ 1,369.9

151.3

222.5

342.1

3.74

5.68

$

182.0

258.7

418.2

4.58

6.65

$

$ 2,321.6

$ 2,665.9

$ 3,395.7

665.5

300.0

0

817.4

778.9

300.0

300.0

499.2

897.6

300.0

800.0

469.2

Assets Under Management (at period end, in billions)

$

184.3

$

241.1

$

274.8

Average Shares Outstanding – diluted

Average Shares Outstanding – adjusted diluted(4)

44.7

38.4

45.2

39.2

44.9

38.9

*For the Financial Highlights notes referenced above, please see page 87.

Q u a r t e r l y   E a r n i n g s

$2.15

$2.00

$1.50

$1.00

$0.50

4Q
97

4Q
98

4Q
99

4Q
00

4Q
01

4Q
02

4Q
03

4Q
04

4Q
05

4Q
06

4Q
07

Cash Earnings Per Share  

Earnings Per Share (diluted)

1

T o   O u r   S h a r e h o l d e r s

In November 2007, we marked the milestone of our 10th

We have created substantial value for our shareholders over

anniversary as a public company. Over the past decade, we

the long term by building a strong and diverse business that

have successfully executed our growth strategy of partnering

includes many of the world’s leading boutique asset managers.

with outstanding boutique asset managers and leveraging our

Our Afﬁliates have outstanding performance records in their

scale to enhance the growth and operations of our Affiliates.

investment disciplines and established reputations for

Through the strong organic growth of our Affiliates, as well as

providing excellent client service, and they are well-positioned

accretive new investments, we have generated compound

to continue to deliver superior results for their clients and

annual growth of 21 percent in Cash Earnings Per Share over

generate organic growth at their firms. We have increased our

that time, as compared to four percent growth in the S&P

exposure to fast-growing asset classes, such as international

500 Index. 

equities and alternative investments (including through our

2007 investments in two high quality alternative managers),

which now account for 30 percent and 20 percent of our

AMG Executive Management

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2

Sean M. Healey 
President and 
Chief Executive Ofﬁcer

Nathaniel Dalton 
Executive Vice President 
and Chief Operating Officer

Darrell W. Crate 
Executive Vice President 
and Chief Financial Ofﬁcer

John Kingston, III
Executive Vice President 
and General Counsel

Jay C. Horgen 
Executive Vice President,
New Investments

 
 
 
 
In 2007, our participation across a range of investment styles and asset classes
around the globe generated strong earnings growth, with Cash Earnings Per Share 
of $6.65, or growth of 17%, and EBITDA of $418 million, or growth of 22%.

earnings, respectively. We also continue to increase our exposure

and scale of our business has positioned us to continue to

to fast-growing client segments worldwide — non-U.S. client

deliver strong results for our shareholders. In the United States,

assets at our Affiliates are approximately $85 billion, or 30

we participate broadly in domestic equity investment styles,

percent of our total assets under management.

from deep value to aggressive growth, as well as quantitative,

AMG has a proven history of delivering strong and consistent

earnings growth even in challenging market environments,

such as those from 2000 to 2003, and the volatile markets in

the second half of 2007. With over 300 products across a

wide array of investment styles and asset classes around the

globe, AMG is highly diversified, and the increased breadth

real estate and other alternative strategies. Our earnings

stability is enhanced by our substantial international client

base, as well as the increasingly global profile of our

investment products, including international developed market

equities, emerging markets equities, and multi-strategy,

currency and market neutral strategies. Finally, our increasing

exposure to alternative investments provides us with earnings

that are generally less correlated to the broader equity markets. 

T o O u r S h a r e h o l d e r s   c o n t i n u e d

We believe international equities will continue to benefit from

continued to build on their impressive one-, three- and five-

long-term secular growth trends, and our participation in 

year performance records. Most notably, Friess Associates,

this area will generate strong growth going forward. Two of

manager of the Brandywine Funds, was a finalist for

our largest Affiliates, Tweedy, Browne Company and Third

Morningstar’s Domestic-Stock Manager of the Year award.

Avenue Management, recently reopened highly regarded

international equity products based on their view that the

current market environment has produced a growing number

of new investment opportunities worldwide. In addition, our

Affiliate Genesis Investment Management is one of the largest

and most experienced emerging markets equities managers 

In the domestic value equity area, which contributes 20

percent of our EBITDA, we have an outstanding array of

products managed by such highly regarded and experienced

managers as Tweedy, Browne, Third Avenue and Systematic

Financial Management. 

in the industry, with outstanding long-term investment

In the growing alternative investments segment of our

performance and excellent prospects for continued growth.

business, we have enhanced the diversity of our product mix

The environment for domestic growth equities products,

which contribute 25 percent of our EBITDA, was strong for

much of the year, and we had excellent results among our

growth equities managers. Affiliates specializing in this area

offer a broad range of outstanding products with superior

absolute and relative performance over the long term. As a

group, our Affiliates, including Friess Associates, TimesSquare

Capital Management, Frontier Capital Management

Company, and Renaissance Investment Management,

to include more than 40 distinct investment strategies, many

of which have low correlation to the equity markets. Our

alternative investment products are focused on a range of

strategies, including distressed securities, quantitative global

macro, activist investing and credit alternatives. Given 

the breadth of our alternative product offerings, we have

significantly increased the potential contribution of

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4

 
 
 
Over the past decade, we have successfully executed our growth strategy of
partnering with outstanding boutique asset managers and leveraging our scale to
enhance the growth and operations of our Affiliates.

performance fees to our earnings, and we expect that

asset managers. Over the past year, we launched our global

performance fees will continue to provide a meaningful

distribution platform with the opening of our Sydney office

contribution to our earnings growth in the future.

(in early 2007) to support institutional marketing initiatives

We further expanded our exposure in the alternatives area

during 2007 by completing accretive investments in two high

quality firms with outstanding performance records,

in Australia, followed by the opening of our London office 

(in early 2008) to support marketing efforts throughout the

Middle East. 

BlueMountain Capital Management and ValueAct Capital.

In the U.S. intermediary-driven marketplace, Managers

BlueMountain, a leading global credit alternatives manager, has

Investment Group continues to provide AMG Affiliates 

a proven track record of delivering exceptional absolute returns

with a platform to meaningfully expand the distribution of

for its clients. ValueAct is a premier active value investment

their products to retail investors. Managers’ team of

manager with strong prospects for continued growth. Both of

experienced sales professionals distributes single- and multi-

these firms offer products with little correlation to our current

manager Affiliate mutual fund and separate account products

portfolio of performance-fee products. 

to intermediaries, including broker-dealers, banks and

We continue to enhance our Affiliates’ growth and

profitability through our distribution platforms both in the

independent advisors, as well as in the sub-advisory and

defined contribution marketplaces.

United States and internationally. Around the globe, our

In addition to the growth of our existing Affiliates, AMG

Affiliates have already demonstrated their strong appeal to

continues to grow through accretive investments in new

non-U.S. clients, but we see additional opportunities to

Affiliates. We have an established track record of successful

support client relationships in key international markets,

investments, and an excellent reputation as an innovative and

particularly markets where institutional investors are

supportive partner to our Affiliates. AMG is widely regarded

increasingly demanding the expertise of outstanding boutique

5

T o O u r S h a r e h o l d e r s   c o n t i n u e d

as the succession planning partner of choice among growing

We have also positioned our capital structure to support our

boutique firms, and prospective partners are also increasingly

growth opportunities. Our business generates strong and

attracted to the range of strategic support services we offer,

recurring free cash flow, and we are disciplined in our

from initiatives that can help firms expand their product

approach to allocating our capital when making investments

offerings and broaden their distribution capabilities, to our

in new Affiliates, investing in growth initiatives on behalf 

legal and compliance resources. Our success in partnering

of our existing Affiliates, and repurchasing our stock. AMG

with boutique firms positions us to execute upon a range of

maintains an investment grade rating and a strong balance

very attractive investment opportunities within the universe 

sheet, with substantial liquidity and financial flexibility. 

of both traditional and alternative managers. 

In 2007, we enhanced our financial capacity through the

AMG Board of Directors

Sean M. Healey
President and 
Chief Executive Ofﬁcer

William J. Nutt 
Chairman 

Patrick T. Ryan
Former Chief Executive Ofﬁcer,
PolyMedica Corporation

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6

 
 
 
 
With more than 300 products across a wide array of investment styles and asset
classes, AMG is highly diversified, and the increased breadth and scale of our
business has positioned AMG to continue to deliver strong results to 
our shareholders.

issuance of a $500 million convertible trust preferred security

we will generate substantial value for our shareholders in the

and an increase in our credit facility, to $950 million. More

future. We are grateful to our Affiliates, employees, Board of

recently, in early 2008, we further strengthened our balance

Directors and service providers for their contributions to our

sheet through the conversion to equity of our $300 million

ongoing success, and to our shareholders for their support.

floating rate convertible securities and $300 million

mandatory convertible securities. 

In conclusion, through the continued execution of our

business strategy — partnering with the highest quality

boutique asset managers in the world, and leveraging our scale

to support and enhance their growth — we are confident that

Sean M. Healey
President and Chief Executive Ofﬁcer

Jide J. Zeitlin
Former General Partner,
Goldman, Sachs & Co.

Richard E. Floor
Partner,
Goodwin Procter LLP

Rita M. Rodriguez
Former Director,
Export-Import Bank 
of the United States

Harold J. Meyerman
Former Senior Executive,
The Chase Manhattan Bank 
and First Interstate Bank, Ltd.

A M G   O v e r v i e w

A M G O v e r v i e w

AMG follows a proven, disciplined 

AMG’s success in executing its growth

strategy for growing its business: invest in

strategy has established a strong foundation

excellent boutique asset management 

for continued growth. With the diversity

businesses; allow management to retain

and strong performance of AMG’s

equity in their ﬁrm as a powerful incentive

Afﬁliates, a proven ability and capacity 

for growth through a partnership structure

to execute its growth initiatives, and

that preserves the unique culture and

AMG’s established position as a leading

approach that has led to their success; and

institutional partner for growing boutique

then provide these Afﬁliates with a range

asset management ﬁrms, AMG is 

of growth and development initiatives

well-positioned to continue to generate

designed to enhance their businesses.

shareholder value in the future.

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8

 
 
 
 
Investment Products

combined with a growing emphasis on

of the investment management industry,

AMG’s Afﬁliates include some of the

highest quality boutique investment 

alternative investments, gives AMG a

while generating incremental growth 

signiﬁcant presence in some of the most

by introducing Afﬁliate products into

dynamic and fastest growing areas of the

additional distribution channels.

management ﬁrms in the industry. As a

investment management industry.

group, AMG Afﬁliates manage more 

Approximately 30 percent of AMG’s

than 300 investment products across a 

EBITDA is derived from global, interna-

broad array of investment styles. AMG’s

tional and emerging markets equity

Afﬁliates are leading investors in their 

products, 20 percent from alternative

disciplines, with years of successful 

application of their investment processes
demonstrated through their outstanding

long-term performance records. 

AMG’s Afﬁliates predominantly offer

active portfolio management of domestic

and international equities, which, 

products, and 45 percent from domestic

equity products, including both growth
and value styles. The remaining five 

percent is derived from ﬁxed income and

balanced products. This diverse array 

of products enables AMG to participate

broadly in the most attractive segments 

Global, International 

and Emerging Markets Equities

AMG’s Afﬁliates include leading boutique

ﬁrms which manage global, international

and emerging markets equities across 

a wide variety of products with distinct

investment styles. Tweedy, Browne

Company, Third Avenue Management,

Genesis Investment Management, AQR

Capital Management, First Quadrant,

and Foyston, Gordon & Payne are 

well-known for their experience investing

9

A M G ’ s   E x p a n d i n g   G l o b a l   P r e s e n c e

Diverse Global and International Products
$150 Billion in Non-U.S. Investments

International Developed Market Equities
Emerging Markets Equities
Currency, Market Neutral and Multi-Strategy
Global Fixed Income
U.S. Equities

Growing International Client Base
$85 Billion in Non-U.S. Clients

Non-U.S. AUM
U.S. AUM

$275 Billion in total AUM as 
of December 31, 2007

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10

 
 
 
 
11

in international markets, and have out-

well-managed foreign companies believed

investment vehicles and separate

standing long-term performance records.

to be priced below their intrinsic values.

accounts, and has generated outstanding

Tweedy, Browne’s Global Value product

is among the largest and most distin-

guished global value equity products, and

follows a diversiﬁed, Graham and Dodd

approach to global investing. The Global

The Third Avenue International Value

results in this area. 

Fund has delivered strong, long-term

results by successfully applying the firm’s

investment strategy and also reopened

to new investors in 2007.

First Quadrant employs its highly

regarded quantitative investment strategies

to identify stocks with shared fundamen-

tal characteristics that are likely to have 

Value fund, which reopened to investors

Genesis is a specialist manager of 

a similar impact upon the equity markets.

in 2008, has an excellent long-term track

emerging markets equities for institu-

The ﬁrm’s diversiﬁed equity portfolios

record and continues to generate strong

tional clients. The ﬁrm aims to achieve

include global long and long/short 

results for its investors. In 2007, the firm

capital growth over the medium- to 

products, as well as regional products

launched the Tweedy, Browne Worldwide

long-term through a company-based

such as a European market neutral

High Dividend Yield Value Fund, which

approach while mitigating country risk

product, which has an excellent long-

seeks long-term growth of capital by

through extensive diversiﬁcation. 

term performance record. 

investing in companies around the globe

that have above-average dividend yields
and are reasonably valued in the market in

relation to their underlying intrinsic value.

AQR employs a disciplined and system-

atic global research process through its

global and international equity products

to develop diversiﬁed portfolios that 

Third Avenue also applies a disciplined

are overweight on cheap (and, in turn,

value philosophy to investing in interna-

underweight on expensive) international

tional equities. The firm has generated

securities, countries and currencies to

solid long-term results utilizing its “safe

achieve long-term success in both invest-

and cheap” investment approach. Third

ment performance and risk management.

Avenue’s international value equity portfo-

AQR manages international products on

lios seek long-term capital appreciation by

behalf of a wide range of leading global

investing in the securities of well-ﬁnanced,

institutional investors through collective

Earnings Contribution 
By Product Category

International Equities 30%
Alternative Strategies 20%
U.S. Growth Equities 25%
U.S. Value Equities 20%
Fixed Income 5%

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12

 
 
 
 
 
Foyston, Gordon & Payne manages

designed to generate strong returns

to provide a meaningful contribution to 

value equity products for institutional

with low correlation to traditional asset

its earnings.

and private clients. Foyston’s investment

classes and the potential to earn incremen-

products — Canadian equities, U.S. 

tal fees based upon their performance.

equities and international equities — have

With 14 Afﬁliates offering investment

each generated strong, long-term invest-

products with performance fee compo-

ment results, signiﬁcantly outperforming

nents, AMG realized a material

their respective peers and benchmarks.

contribution to its earnings from perform-

Alternative Strategies

Alternative products are among the most

rapidly growing segments of the asset

management industry, with many products

ance fees in 2007. The strength of AMG’s

results in this area reflects its Afﬁliates’

broad expertise in their respective 

investment disciplines, and the Company

expects that performance fees will continue

AMG has substantially increased the

breadth and diversity of its alternative

product offerings through investments in
leading firms such as First Quadrant,
AQR, BlueMountain Capital

Management, Genesis, Third Avenue

and ValueAct Capital. Overall, the

Company offers more than 40 distinct

investment strategies, including distressed

securities, quantitative global macro,

active value and credit alternatives.

A M G   D i s t r i b u t i o n   C h a n n e l s

Earnings Contribution 
By Distribution Channel

Institutional 50%
Mutual Fund 40%
High Net Worth 10%

Institutional Distribution Channel

AMG’s Affiliates offer approximately 200 investment products across more than 50 different investment styles in the institutional distribution channel,
including small-, small/mid-, mid-, and large-capitalization value, growth equity and emerging markets. In addition, AMG’s Affiliates offer quantitative,
alternative, credit arbitrage and fixed income products. AMG’s Affiliates manage assets for foundations and endowments, defined benefit and defined
contribution plans for corporations and municipalities, and Taft-Hartley plans, with disciplined and focused investment styles that address the
specialized needs of institutional clients.

AMG’s institutional investment products are distributed by over 50 sales and marketing professionals at its Affiliates who develop new institutional
business through direct sales efforts and established relationships with pension consultants. AMG works with its Affiliates in executing and 
enhancing their marketing and client service initiatives, with a focus on ensuring that its Affiliates’ products and services successfully address the
specialized needs of their clients and are responsive to the evolving demands of the marketplace. In addition, AMG provides its Affiliates with
resources to improve sales and marketing materials, network with the pension consultant and plan sponsor communities, and further expand and
establish new distribution alternatives. AMG has also worked with its Affiliates to enhance their marketing and client service capabilities by
establishing a global distribution platform. Through this platform, AMG provides institutional investors in fast-growing international marketplaces a
single point of contact to access a broad range of investment products offered by its Affiliates.

Mutual Fund Distribution Channel

AMG has a strong presence in the mutual fund channel, with Affiliates providing advisory or sub-advisory services to more than 100 mutual funds.
These funds are distributed to retail and institutional clients both directly and through intermediaries, including independent investment advisors,
retirement plan sponsors, broker-dealers, major fund marketplaces and bank trust departments.

By utilizing the distribution, sales, client service and back-office capabilities of Managers Investment Group, AMG’s Affiliates are provided access
to the mutual fund distribution channel and wrap sponsor platforms. Managers offers Affiliates a single point of contact for retail intermediaries
such as banks, brokerage firms and other sponsored platforms. Within this distribution channel, Managers is presently servicing and distributing
approximately 40 mutual funds, including funds managed by eight Affiliates. 

High Net Worth Distribution Channel

AMG’s Affiliates serve two principal client groups in the high net worth distribution channel. The first group consists principally of direct
relationships with high net worth individuals and families and charitable foundations. For these clients, AMG’s Affiliates provide investment
management or customized investment counseling and fiduciary services. The second group consists of individual managed account client
relationships established through intermediaries, which are generally brokerage firms or similar sponsors. AMG’s Affiliates provide investment
management services through more than 90 managed account programs. 

AMG has undertaken several initiatives to provide its Affiliates with enhanced managed account distribution and administration capabilities.
Through Managers Investment Group, AMG is presently distributing more than 40 investment products managed by nine Affiliates. Managers
distributes single- and multi-manager separate account products and mutual funds through brokerage firms.

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14

 
 
 
 
15

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16

 
 
 
 
AMG's Affiliates have outstanding performance records in their

investment disciplines and established reputations for providing

excellent client service, and are well-positioned to continue to

deliver superior results for their clients and generate organic

growth at their firms.

17

First Quadrant offers investment 

global asset allocation strategies focused

offers products ranging from aggressive

management strategies in two main areas,

on uncorrelated alpha sources across 

high volatility, market neutral hedge

equities and global macro, while paying

the globe. 

funds to low volatility, benchmark-driven

close attention to risk management. 

In addition, First Quadrant’s Global

Alternatives mutual fund offers retail

investors access to the firm’s proven

AQR employs a disciplined, multi-asset,

traditional portfolios. 

global research process. The ﬁrm employs

BlueMountain is a relative value

more than 20 distinct investment 

investor in the global credit and equity

strategies in managing its portfolios, and

derivatives markets. The ﬁrm identifies

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18

 
 
 
 
investment strategies using a combination

Genesis, a leading investment firm in

Third Avenue applies its disciplined

of fundamental research and quantitative

emerging markets equities, introduced

value approach to products investing in

and technical analysis. BlueMountain’s

the Genesis Smaller Companies Fund in

real estate securities, as well as distressed

investment team operates in a highly

2006. The fund invests primarily in

securities and other special situations. 

integrated manner, with risk management

equity securities of firms that operate 

For example, the Third Avenue Real

as a key element of the firm’s investment

in emerging markets and have market

Estate Value Fund invests primarily in

process.

capitalizations of less than $1 billion.

equity and debt securities of companies

in the real estate industry or related

19

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20

industries, using bottom-up, fundamental

and board of directors to implement

Management and Renaissance

analysis to identify undervalued securities.

business strategies that enhance

Investment Management have strong

Third Avenue also has a long history 

shareholder value and create a return

market positions and are well-respected 

of including investments in distressed 

independent of the market. 

as leading growth investors. 

debt securities within its equity mutual

funds and has extended this expertise to 

investing in distressed and other special

situations through private investment
partnerships.

ValueAct establishes substantial owner-

ship positions in companies it believes to

be fundamentally undervalued, and then

works with the company’s management

U.S. Growth Equity

AMG’s Afﬁliates are among the leading

boutique managers in the active manage-

ment of U.S. equities. Among the

Company’s larger Afﬁliates providing

growth equity expertise, Friess

Associates, TimesSquare Capital

Management, Frontier Capital

Friess uses a time-tested investment

strategy that relies on exhaustive, 

company-by-company research to 

identify companies with dynamic earn-

ings growth potential and a high

probability for earnings surprises that

have yet to be recognized by the broader

investment community. Friess’ highly

rated Brandywine mutual fund family is

one of the most well-respected and best 

 
 
 
 
strategies. The ﬁrm has achieved excellent

industry, with strong-performing products

returns for its investors through its propri-

including the Third Avenue Value and

etary research driven, bottom-up process

Third Avenue Small-Cap Value mutual

of selecting companies that meet its

funds. The ﬁrm seeks to invest in securities

deﬁnition of superior growth businesses. 

and companies at a deep discount to 

Frontier offers a wide range of high 

quality investment products, including

strategies focused on small-, small/mid-,

the intrinsic value of their assets, and has 

created superior returns for its investors

over the long term. 

mid-, and large-cap growth equities. 

Systematic specializes in the management

The ﬁrm uses a highly disciplined stock

of value equity portfolios across the 

selection process driven by intensive

market capitalization spectrum. The 

internal research to generate excellent

ﬁrm’s investment philosophy focuses on

returns for its clients.

Renaissance employs disciplined, 

systematic investment processes in the

management of small-, mid-, and large-

cap growth stocks. Renaissance’s portfolios

follow specific investment disciplines

designed to maximize return and control

risk, and have generated strong, long-term

results for the firm’s clients. 

U.S. Value Equity

AMG’s Afﬁliates also include some of the

industry’s most experienced and respected

practitioners of value investing, such as

Tweedy, Browne, Third Avenue and

Systematic Financial Management.

AMG’s domestic value equity products

span a wide range of market capitalizations

and include many of the industry’s 

most highly rated investment products.

performing families of mutual funds, and 

Tweedy, Browne, a renowned practitioner

it continues to generate superior results. 

In 2007, the firm was nominated for

Morningstar’s Domestic-Stock Manager

of the Year award. Friess also has

of deep value investing, manages U.S.

equity products including the Tweedy,

Browne Value Fund, which reopened to

investors in 2007, as well as individual

identifying companies that exhibit a 

combination of attractive valuation and a

positive earnings catalyst. This strategy

has produced superior near- and long-
term results for its clients. 

Fixed Income

In addition to their specialized expertise 

in equity and alternative products, a num-

ber of AMG’s Affiliates, such as Foyston

and Managers Investment Group, offer

fixed income and other products to their

institutional, mutual fund and high net

worth clients. Together, these products

account for approximately five percent of

AMG’s EBITDA.

Growth and Development
Initiatives 

AMG’s growth and development strategy

is focused on preserving each Afﬁliate’s

distinct operating and investment culture

while offering Afﬁliates the advantages 

of scale.

expanded its distribution internally in the

accounts for institutional and high net

While AMG’s Affiliates have independ-

institutional channel, as well as in the

retail and defined contribution channels
through AMG’s Managers Investment

Group platform. 

worth investors. Tweedy, Browne’s research

ently demonstrated an ability to achieve

seeks to appraise the intrinsic value of a
company, and uses a disciplined buy 

strong organic growth, AMG has imple-
mented a number of strategic initiatives

and sell process to guide its investment

to further enhance the growth and

TimesSquare is among the industry’s

leading growth equity managers, special-

izing in small-, small/mid-, and mid-cap

Third Avenue is among the leading value
managers in the investment management

decisions.

proﬁtability of its Afﬁliates’ businesses.

AMG makes available to its Afﬁliates a

broad array of opportunities and services, 

21

including initiatives designed to expand

provide superior execution in sales, client

an Afﬁliate’s product offerings and 

service and support. By providing its

distribution capabilities, as well as cross-

Affiliates with efficient and superior 

Afﬁliate initiatives that enable Afﬁliates 

distribution capabilities for international

to streamline operations and obtain high

investors in these regions, AMG expects

quality services at cost-effective rates.

to generate significant incremental client

While Affiliates maintain the flexibility

cash flows over time. AMG has identified

and freedom to determine their participa-

additional, fast-growing markets where its

tion, nearly all have elected to participate

high quality investment products appeal

in one or more of these initiatives.

to sophisticated institutional investors,

Multi-Affiliate Distribution

Platforms

AMG’s Affiliates, like high quality boutique

asset managers generally, integrate their

specific investment process in every func-

tion of the firm, including both sales and

client service, which provides these firms

with competitive advantages in bringing

their products and services to certain dis-

tribution channels in the marketplace,

such as direct or consultant-driven institu-

tional channels. In other channels, which

require a breadth of product offerings and

depth of marketing capacity, AMG has

created distribution platforms that offer

Affiliates the benefits of scale where they

exist, while preserving each Affiliate’s dis-

tinct operating and investment culture, as

well as its unique set of relationships and

marketing expertise. More than half of

AMG’s Affiliates, including most of its

and expects to further develop this plat-

form in other regions around the world.

In the United States, AMG’s Managers

Investment Group distribution platform

offers Affiliates the opportunity to mean-

ingfully expand their product offerings
and distribution capabilities through

intermediaries in the retail marketplace,

where scale and quality of execution in

sales, client service, support and back-

office requirements are essential for

success. With a team of experienced sales

professionals, the Managers platform
services and distributes single- and 

multi-manager Affiliate mutual fund and

separate account products to intermedi-

aries, including broker-dealers, banks 

and independent advisors. In addition,

the Managers Investment Group platform

distributes Affiliate mutual funds in the

defined contribution marketplace.

largest Affiliates, use AMG as part of their

Legal and Compliance Resources

product distribution strategy.

AMG has also leveraged the beneﬁts 

As institutional investors worldwide

of scale to offer Afﬁliates cost-effective

increasingly seek high quality investment

access to high quality resources in areas

managers, AMG has identified a number

such as compliance and technology. As

of opportunities to meet the global

the regulatory climate in the investment

demand for boutique asset managers.

management industry continues to create

AMG has recently established offices in

complexity, Affiliates can take advantage

Sydney and London to provide its
Affiliates with access to institutional

of AMG’s centralized resources as a source
of support, providing a full range of 

investors in Australia and the Middle

customized assistance across the universe of

East. AMG’s experienced professionals

requirements. By bringing the knowledge

have broad expertise in serving these 

and experience of senior AMG attorneys

markets and a demonstrated capacity to

and compliance professionals to its

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22

 
 
 
 
23

Afﬁliates, AMG provides industry

expertise and robust, leading-edge com-

pliance capabilities at a level well beyond

that which would be typically available 

to boutique ﬁrms.

Ongoing Succession Planning

AMG works closely with its Afﬁliates to

maintain and enhance the equity incentives

that are critical to each Afﬁliate’s continued

growth. AMG engages in an ongoing

process with its Afﬁliates to manage each

ﬁrm’s succession and transition process,

with a focus on ensuring that equity incen-

tives are properly allocated and aligned

among key members of each ﬁrm.

Investments in 
New Affiliates

In addition to the strong organic growth

of AMG’s existing Afﬁliates, AMG has

generated substantial growth through

accretive investments in additional high

quality boutique firms.

AMG’s investment strategy provides

Afﬁliate managers with direct equity in

their ﬁrm, creating a powerful incentive

for long-term growth and investment 

performance. This approach preserves the

entrepreneurial culture that characterizes

the best boutique asset management

firms, while also providing access to the

resources and distribution capabilities of

a larger asset management company.

AMG’s investment structure is attractive

to successful asset managers who value

their autonomy and continued participa-

tion in their ﬁrm’s future growth.

AMG continues to identify and develop

relationships with high quality domestic

and international boutique ﬁrms, and is

well-positioned to execute new invest-
ments, having established relationships

with many of the best ﬁrms in the industry.

Within its target universe, AMG is widely

recognized as the preeminent succession

planning alternative for owners, clients

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24

 
 
 
 
and employees of ﬁrms that seek to 

facilitate ownership transitions, while

maintaining their unique culture and

approach and providing next generation

management with key growth incentives

through direct equity ownership.

With a proven track record of value 

Financial Strength

AMG’s operations generate strong and

recurring free cash flow, and the

Company’s broad exposure across various

investment styles and distribution 

channels provides balance and stability to

this cash flow. AMG takes a disciplined

creation, a disciplined investment strategy,

approach to investing its free cash flow,

and a strong, flexible balance sheet to sup-

and adheres to well-deﬁned return 

port further growth, AMG is

well-positioned for continued success in
executing accretive investments in new

Afﬁliates.

objectives in making investments in

growth initiatives for existing Afﬁliates, 

as well as in executing acquisitions of

interests in new Afﬁliates.

AMG supports its growth strategy by

maintaining a strong balance sheet and

diverse sources of long-term capital. The

Company maintains an investment grade

rating, and strives to maintain substantial

liquidity and ﬁnancial flexibility. AMG

manages its capital resources and cash flow

to achieve superior long-term results for

shareholders by ﬁnancing new investments,

repaying existing indebtedness, and 

repurchasing its stock, when appropriate.

25

D i s t r i b u t i o n   C h a n n e l s

Institutional

AQR

Beutel 

BlueMountain

Chicago Equity
Partners

Friess

Frontier

Genesis

Gofen and
Glossberg

Davis Hamilton

J.M. Hartwell

Deans Knight

Essex 

First Quadrant

Foyston 

Montrusco
Bolton

Renaissance

Rorer

Skyline

Systematic

Third Avenue

TimesSquare

Tweedy, Browne

ValueAct

Welch & Forbes

Mutual Fund 

Beutel 

First Quadrant

Chicago Equity
Partners

Covington 

Davis Hamilton

Deans Knight

Essex

Foyston 

Friess

Frontier

Genesis

Managers

High Net Worth

BlueMountain

Beutel 

Chicago Equity
Partners

Davis Hamilton

Foyston 

Friess 

Frontier

Gofen and
Glossberg

Montrusco 
Bolton

Renaissance

Skyline

Systematic

Third Avenue

TimesSquare

Tweedy, Browne

Montrusco
Bolton

Renaissance

Rorer

Systematic

Deans Knight

J.M. Hartwell

Third Avenue

Essex

First Quadrant

Managers

Tweedy, Browne

ValueAct

Welch & Forbes

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26

 
 
 
 
I n v e s t m e n t   P r o d u c t s

International Equit ies

Alternative Strategies

Fixed Income

AQR

Beutel 

Deans Knight

First Quadrant

Foyston

Genesis

Managers

Montrusco
Bolton

Renaissance

Systematic

Third Avenue

Tweedy, Browne

AQR

BlueMountain

Essex

First Quadrant

Genesis

J.M. Hartwell

Montrusco
Bolton

Renaissance

Third Avenue

ValueAct

Beutel

Chicago Equity
Partners

Davis Hamilton

Deans Knight

Essex

Foyston

Managers

Montrusco
Bolton

U.S. Growth Equit ies

U.S. Value Equit ies

Chicago Equity
Partners 

Davis Hamilton

Essex

Friess

Frontier

J.M. Hartwell

Managers

Montrusco
Bolton

Renaissance

TimesSquare

Welch & Forbes

AQR 

Beutel

Chicago Equity
Partners 

First Quadrant

Foyston

Frontier

Gofen &
Glossberg

Managers

Rorer

Skyline

Systematic

Third Avenue

Tweedy, Browne

27

AMG Stock Price Performance Since IPO 
Cumulative Total Return

November 21, 1997 – December 31, 2007

$800

$700

$600

$500

$400

$300

$200

$100

12/97

12/98 

12/99

12/00

12/01

12/02

12/03

12/04

12/05

12/06

12/07

Afﬁliated Managers Group, Inc.
Peer Group

S&P 500 Index
S&P 500 Financials Sector Index

FPO-Last year’s 
copy for style only

The stock performance graph assumes an investment of $100 in the common stock of AMG (at the per share closing price of its
common stock on November 21, 1997) and each of the indices described above, and the reinvestment of any dividends. 
The historical information set forth above is not necessarily indicative of future performance.

The Peer Group index is comprised of the following entities: BlackRock, Inc., Eaton Vance Corp., Federated Investors, Inc., 
Franklin Resources, Inc., GAMCO Investors, Inc., Janus Capital Group Inc.,  T. Rowe Price Group, Inc., Waddell & Reed Financial, Inc. 
and W.P. Stewart & Co., Ltd.

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28

 
 
 
 
Financial Information

30 Management’s Discussion and Analysis of 

Financial Condition and Results of Operations

53

Selected Financial Data

54 Management’s Report on Internal Control 

Over Financial Reporting 

55

Report of Independent Registered 
Public Accounting Firm 

56

Consolidated Financial Statements

60 Notes to Consolidated Financial Statements 

86

Common Stock and Corporate
Organization Information

29

Management’s Discussion and Analysis of 
Financial Condition and Results of Operations 

Forward-Looking Statements

When used in this Annual Report and in our other filings with

the United States Securities and Exchange Commission, in our

press releases and in oral statements made with the approval of

an  executive  officer,  the  words  or  phrases  “will  likely  result,”

“are  expected  to,”  “will  continue,”  “is  anticipated,”  “may,”

“intends,” “believes,” “estimate,” “project” or similar expressions

are  intended  to  identify  “forward-looking statements”  within

the meaning of the Private Securities Litigation Reform Act of

1995. Such statements are subject to certain risks and uncer-
tainties, including, among others, the following:

These  factors  (as  well  as  those  discussed  above  under  “Risk

Factors”)  could  affect  our  financial  performance  and  cause

actual results to differ materially from historical earnings and

those  presently  anticipated  and  projected.  We  will  not 

undertake and we specifically disclaim any obligation to release

publicly the result of any revisions which may be made to any

forward-looking  statements  to  reflect  events  or  circumstances

after the date of such statements or to reflect the occurrence of

events, whether or not anticipated. In that respect, we wish to

caution readers not to place undue reliance on any such for-

ward-looking statements, which speak only as of the date made.

our performance is directly affected by changing conditions

in  global  financial  markets  generally  and  in  the  equity

markets particularly, and a decline or a lack of sustained

growth  in  these  markets  may  result  in  decreased  advisory

fees  or  performance  fees  and  a  corresponding  decline  (or

lack of growth) in our operating results and in the cash flow

distributable to us from our Affiliates;

we cannot be certain that we will be successful in finding

or  investing  in  additional  investment  management  firms

on  favorable  terms,  that  we  will  be  able  to  consummate

announced  investments  in  new  investment  management

firms,  or  that  existing  and  new  Affiliates  will  have

favorable operating results;

we  may  need  to  raise  capital  by  making  long-term  or

short-term borrowings or by selling shares of our common

stock or other securities in order to finance investments in

additional  investment  management  firms  or  additional

investments in our existing Affiliates, and we cannot be sure

that such capital will be available to us on acceptable terms,

if at all; and

Overview

We are an asset management company with equity invest-

ments in a diverse group of boutique investment manage-

ment firms (our “Affiliates”). We pursue a growth strategy

designed to generate shareholder value through the internal

growth of our existing business, additional investments in

boutique investment management firms and strategic trans-

actions and relationships designed to enhance our Affiliates’

businesses and growth prospects.

Through  our  Affiliates,  we  manage  approximately  $274.8

billion in assets (as of December 31, 2007) in more than 300

investment products across a broad range of asset classes and

investment  styles  in  three  principal  distribution  channels:

Mutual Fund, Institutional and High Net Worth. We believe

that our diversification across asset classes, investment styles

and distribution channels helps to mitigate our exposure to

the  risks  created  by  changing  market  environments.  The

following summarizes our operations in our three principal

distribution channels.

those  certain  other  factors  discussed  under  the  caption

Our Affiliates provide advisory or sub-advisory services

“Risk  Factors,”  which  are  set  forth  in  our  2007  Annual

to more than 100 mutual funds. These funds are distrib-

Report on Form 10-K.

uted  to  retail  and  institutional  clients  directly  and

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30

 
 
 
 
through  intermediaries,  including  independent  invest-

ValueAct has over 250 clients, including endowments,

ment advisors, retirement plan sponsors, broker/dealers,

foundations,  corporations,  family  offices,  high  net

major fund marketplaces and bank trust departments.

worth investors and funds of funds.

In the Institutional distribution channel, our Affiliates

In December 2007, we acquired a minority interest in

offer  approximately  200  investment  products  across

BlueMountain Capital Management (“BlueMountain”),

approximately 50 different investment styles, including

a leading global credit alternatives manager specializing

small,  small/mid,  mid  and  large  capitalization  value,

in relative value strategies in the corporate loan, bond,

growth equity and emerging markets. In addition, our

credit and equity derivatives markets. BlueMountain has

Affiliates offer quantitative, alternative, credit arbitrage

and fixed income products. Through this distribution

offices in New York and London, and manages assets on

behalf  of  predominantly  institutional  and  high  net

channel,  our  Affiliates  manage  assets  for  foundations

worth clients.

and endowments, defined benefit and defined contri-

bution plans for corporations and municipalities, and

Taft-Hartley  plans,  with  disciplined  and  focused

investment styles that address the specialized needs of

institutional clients.

The High Net Worth distribution channel is comprised

broadly of two principal client groups. The first group

consists principally of direct relationships with high net

worth  individuals  and  families  and  charitable  founda-

tions. For these clients, our Affiliates provide investment

management or customized investment counseling and

fiduciary services. The second group consists of individ-

ual  managed  account  client  relationships  established

through  intermediaries,  generally  brokerage  firms  or

other  sponsors.  Our  Affiliates  provide  investment

management  services  through  more  than  90  managed

account and wrap programs.

We operate our business through our Affiliates in our three

principal distribution channels, maintaining each Affiliate’s

distinct entrepreneurial culture and independence through

our  investment  structure.  In  each  case,  our  Affiliates  are

organized  as  separate  firms,  and  their  operating  or  share-

holder  agreements  are  tailored  to  provide  appropriate

incentives  for  our  Affiliate  management  owners  and  to

address the particular characteristics of that Affiliate while

enabling us to protect our interests.

In  making  investments  in  boutique  asset  management

firms, we seek to partner with the highest quality firms in

the industry, with outstanding management teams, strong

long-term  performance  records  and  a  demonstrated  com-

mitment to continued growth and success. Fundamental to

our investment approach is the belief that Affiliate manage-

ment  equity  ownership  (along  with  AMG’s  ownership)

aligns our interests and provides Affiliate managers with a

In 2007, we enhanced the diversity of our product offerings

powerful incentive to continue to grow their business. Our

across these channels through investments in two alternative

investment  structure  provides  a  degree  of  liquidity  and

investment managers:

diversification to principal owners of boutique investment

management firms, while at the same time expanding equity

In  November,  we  acquired  a  minority  interest  in

ownership  opportunities  among  the  firm’s  management

ValueAct  Capital  (“ValueAct”),  a  San  Francisco–based

and allowing management to continue to participate in the

investment firm that establishes ownership interests in

firm’s future growth. Our partnership approach also ensures

undervalued companies and works with each company’s

that Affiliates maintain operational autonomy in managing

management  and  Board  of  Directors  to  implement

their business, thereby preserving their firm’s entrepreneurial

business  strategies  that  enhance  shareholder  value.

culture and independence.

31

Although the specific structure of each investment is highly

share  of  cash  under  the  Owners’  Allocation  generally  has

tailored  to  meet  the  needs  of  a  particular  Affiliate,  in  all

priority  over  the  allocations  and  distributions  to  the

cases, AMG establishes a meaningful equity interest in the

Affiliate’s  managers.  As  a  result,  the  excess  expenses  first

firm,  with  the  remaining  equity  interests  retained  by  the

reduce the portion of the Owners’ Allocation allocated to

management of the Affiliate. Each Affiliate is organized as

the  Affiliate’s  managers  until  that  portion  is  eliminated,

a separate firm, and its operating or shareholder agreement

before  reducing  the  portion  allocated  to  us.  Any  such

is structured to provide appropriate incentives for Affiliate

reduction  in  our  portion  of  the  Owners’  Allocation  is

management owners and to address the Affiliate’s particular

required to be paid back to us out of the portion of future

characteristics while also enabling us to protect our inter-

Owners’ Allocation allocated to the Affiliate’s managers.

ests,  including  through  arrangements  such  as  long-term

employment  agreements  with  key  members  of  the  firm’s

Our minority investments are also structured to align our

management team.

interests with those of the Affiliate’s management through

shared equity ownership, as well as to preserve the Affiliate’s

In most cases, we own a majority of the equity interests of

entrepreneurial  culture  and  independence  by  maintaining

a  firm  and  structure  a  revenue  sharing  arrangement,  in

the Affiliate’s operational autonomy. In cases where we hold

which  a  percentage  of  revenue  is  allocated  for  use  by

a  minority  interest,  the  revenue  sharing  arrangement

management of that Affiliate in paying operating expenses

generally  allocates  a  percentage  of  the  Affiliate’s  revenue.

of the Affiliate, including salaries and bonuses. We call this

The  remaining  revenue  is  used  to  pay  operating  expenses

the  “Operating  Allocation.” The  portion  of  the  Affiliate’s

and profit distributions to the other owners.

revenue  that  is  allocated  to  the  owners  of  that  Affiliate

(including  us)  is  called  the  “Owners’  Allocation.”  Each

Certain of our Affiliates operate under profit-based arrange-

Affiliate  allocates  its  Owners’  Allocation  to  its  managers

ments through which we own a majority of the equity in

and  to  us  generally  in  proportion  to  their  and  our

the firm and receive a share of profits as cash flow, rather

respective ownership interests in that Affiliate.

than  a  percentage  of  revenue  through  a  typical  revenue

One of the purposes of our revenue sharing arrangements is

increase  or  decrease  in  the  revenue  or  expenses  of  such

to  provide  ongoing  incentives  for  Affiliate  managers  by

firms. In these cases, we participate in a budgeting process

allowing  them  to  participate  in  the  growth  of  their  firm’s

and  generally  provide  incentives  to  management  through

revenue, which may increase their compensation from both

compensation  arrangements  based  on  the  performance  of

sharing agreement. As a result, we participate fully in any

the  Operating  Allocation  and  the  Owners’  Allocation.

the Affiliate.

These  arrangements  also  provide  incentives  to  control

operating  expenses,  thereby  increasing  the  portion  of  the

We  are  focused  on  establishing  and  maintaining  long-

Operating Allocation that is available for growth initiatives

term  partnerships  with  our  Affiliates.  Our  shared  equity

and compensation.

ownership  gives  both  AMG  and  our  Affiliate  partners

meaningful incentives to manage their businesses for strong

An Affiliate’s Operating Allocation is structured to cover its

future growth. From time to time, we may consider changes

operating  expenses.  However,  should  actual  operating

to the structure of our relationship with an Affiliate in order

expenses exceed the Operating Allocation, our contractual

to better support the firm’s growth strategy.

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32

 
 
 
 
Through  our  affiliated  investment  management  firms,  we

that, within any calendar year, the majority of performance

derive most of our revenue from the provision of investment

fees will typically be realized in the fourth quarter.

management services. Investment management fees (“asset-

based  fees”)  are  usually  determined  as  a  percentage  fee

For  certain  of  our  Affiliates,  generally  where  we  own  a

charged on periodic values of a client’s assets under manage-

minority interest, we are required to use the equity method

ment;  most  asset-based  advisory  fees  are  billed  by  our

of  accounting.  Consistent  with  this  method,  we  have  not

Affiliates quarterly. Certain clients are billed for all or a por-

consolidated the operating results of these firms (including

tion of their accounts based upon assets under management

their revenue) in our Consolidated Statements of Income.

valued at the beginning of a billing period (“in advance”).

Our share of these firms’ profits (net of intangible amorti-

Other clients are billed for all or a portion of their accounts

based upon assets under management valued at the end of

the billing period (“in arrears”). Most client accounts in the

High Net Worth distribution channel are billed in advance,

and  most  client  accounts  in  the  Institutional  distribution

channel are billed in arrears. Clients in the Mutual Fund dis-

tribution channel are billed based upon average daily assets

under management. Advisory fees billed in advance will not

reflect  subsequent  changes  in  the  market  value  of  assets

under management for that period but may reflect changes

due to client withdrawals. Conversely, advisory fees billed

in arrears will reflect changes in the market value of assets

under management for that period.

zation) is reported in “Income from equity method invest-

ments,”  and  is  therefore  reflected  in  our  Net  Income

and EBITDA. As a consequence, increases or decreases in

these firms’ assets under management (which totaled $64.0

billion  as  of  December  31,  2007)  will  not  affect  reported

revenue  in  the  same  manner  as  changes  in  assets  under

management at our other Affiliates. Our recent investments

in  ValueAct  and  BlueMountain  are  both  accounted  for

under the equity method of accounting.

Our  Net  Income  reflects  the  revenue  of  our  consolidated

Affiliates and our share of income from Affiliates which we

account for under the equity method, reduced by:

our  expenses,  including  the  operating  expenses  of  our

In  addition,  over  50  Affiliate  alternative  investment  and

consolidated Affiliates; and

equity products, representing approximately $45 billion of

assets under management (as of December 31, 2007), also

bill  on  the  basis  of  absolute  or  relative  investment

performance  (“performance  fees”). These  products,  which

are primarily in the Institutional distribution channel, are

often structured to have returns that are not directly corre-

lated  to  changes  in  broader  equity  indices  and,  if  earned,

the  performance  fee  component  is  typically  billed  less

the  profits  allocated  to  managers  of  our  consolidated

Affiliates (i.e., minority interest).

As discussed above, for consolidated Affiliates with revenue

sharing arrangements, the operating expenses of the Affiliate

as well as its managers’ minority interest generally increase (or

decrease)  as  the  Affiliate’s  revenue  increases  (or  decreases)

because of the direct relationship established in many of our

frequently  than  an  asset-based  fee.  Although  performance

agreements between the Affiliate’s revenue and its Operating

fees inherently depend on investment results and will vary

Allocation  and  Owners’  Allocation.  At  our  consolidated

from period to period, we anticipate performance fees to be

profit-based Affiliates, expenses may or may not correspond

a recurring component of our revenue. We also anticipate 

to increases or decreases in the Affiliates’ revenues.

33

Our level of profitability will depend on a variety of factors,

Assets under Management

including:

Statement of Changes

those affecting the global financial markets generally and

(in billions)

the equity markets particularly, which could potentially

result in considerable increases or decreases in the assets

under management at our Affiliates;

the level of Affiliate revenue, which is dependent on the

ability of our existing and future Affiliates to maintain

or  increase  assets  under  management  by  maintaining

their existing investment advisory relationships and fee

structures,  marketing  their  services  successfully  to  new

clients and obtaining favorable investment results;

our  receipt  of  Owners’  Allocation  from  Affiliates  with

revenue  sharing  arrangements,  which  depends  on  the

ability of our existing and future Affiliates to maintain

certain levels of operating profit margins;

the increases or decreases in the revenue and expenses of

Affiliates that operate on a profit-based model;

the  availability  and  cost  of  the  capital  with  which  we

finance our existing and new investments;

our  success  in  making  new  investments  and  the  terms

upon which such transactions are completed;

December 31, 2004

Net client cash flows
New investments(1)
Investment performance
Other(2)

December 31, 2005

Net client cash flows
New investments(1)
Investment performance
Other(2)

December 31, 2006

Net client cash flows
New investments(1)
Investment performance
Other(2)

Mutual
Fund

$33.9
4.1
6.9
5.4
—

50.3
0.4
0.6
6.9
—

58.2
(0.2)
—
4.6
(0.4)

Institutional

High Net
Worth

$ 76.1
8.7
15.0
13.1
(3.6)

109.3
18.5
11.1
16.1
(0.3)

154.7
0.7
8.8
15.9
0.3

$19.8
(2.0)
6.1 
0.8
—

24.7
0.5
0.2
3.4
(0.6)

28.2
(0.9)
2.0
3.9
(1.0)

Total

$129.8
10.8
28.0
19.3
(3.6)

184.3
19.4
11.9
26.4
(0.9)

241.1
(0.4)
10.8
24.4
(1.1)

December 31, 2007

$ 62.2

$180.4

$32.2

$274.8

(1) In 2005, we acquired the mutual fund business of Fremont Investment
Advisors  Inc.  through  Managers  Investment  Group  LLC  and
completed  new  Affiliate  investments  in  a  group  of  Canadian  asset
management firms. In 2006, we completed a new Affiliate investment
in Chicago Equity Partners. In 2007, we completed new investments
in ValueAct and BlueMountain.

(2) We  transferred  our  interests  in  certain  affiliated  investment  manage-
ment  firms  in  each  of  the  periods  presented.  Additionally,  during
2007,  we  reclassified  $0.6  billion  and  $0.4  billion  of  existing  assets
under management to the Mutual Fund and Institutional distribution
channels, respectively, from the High Net Worth distribution channel.
These changes were not material to our financial position or results
of operations.

the level of intangible assets and the associated amortiza-

The operating segment analysis presented in the following

tion expense resulting from our investments;

table is based on average assets under management. For the

the  level  of  our  expenses,  including  compensation  for

our employees; and

the level of taxation to which we are subject.

Results of Operations

Mutual  Fund  distribution  channel,  average  assets  under

management generally represent an average of the daily net

assets  under  management.  For  the  Institutional  and  High

Net Worth distribution channels, average assets under man-

agement represents an average of the assets at the beginning

and  end  of  each  calendar  quarter  during  the  applicable

period. We believe that this analysis more closely correlates

The following tables present our Affiliates’ reported assets

to the billing cycle of each distribution channel and, as such,

under  management  by  operating  segment  (which  are  also

provides a more meaningful relationship to revenue.

referred to as distribution channels in this Annual Report).

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(in millions, except as noted)

2005

2006

% Change

2007

% Change

Average Assets under Management (in billions)(1)
Mutual Fund
Institutional
High Net Worth

Total

Revenue(2)(3)
Mutual Fund
Institutional
High Net Worth

Total

Net Income(2)
Mutual Fund
Institutional
High Net Worth

Total

EBITDA(2)(3)
Mutual Fund
Institutional
High Net Worth

Total

$ 43.0
88.8
20.9

$ 152.7

$ 400.9
385.7
129.9

$ 916.5

$ 56.8
51.3
11.0

$ 119.1

$ 110.3
125.2
32.0

$ 267.5

$

54.4
125.1
26.8

$ 206.3

$ 501.7
514.8
153.9

$1,170.4

$

68.0
65.8
17.5

$ 151.3

$ 138.2
162.3
41.6

$ 342.1

27%
41%
28%

35%

25%
33%
18%

28%

20%
28%
59%

27%

25%
30%
30%

28%

$

61.9
168.9 
30.5

$ 261.3

$ 558.3
645.6
166.0

$1,369.9

$

72.5
87.9
21.6

$ 182.0

$ 153.9
211.3
53.0

$ 418.2

14%
35%
14%

27%

11%
25%
8%

17%

7%
34%
23%

20%

11%
30%
27%

22%

(1) Assets under management attributable to investments that were completed during the relevant periods are included on a weighted average basis for
the period from the closing date of the respective investment. Average assets under management includes assets managed by affiliated investment
management firms that we do not consolidate for financial reporting purposes of $20.6 billion, $39.1 billion and $53.7 billion for 2005, 2006 and
2007, respectively.

(2) Note 26 to the Consolidated Financial Statements describes the basis of presentation of the financial results of our three operating segments. As dis-
cussed  in  Note  1  to  the  Consolidated  Financial  Statements,  we  are  required  to  use  the  equity  method  of  accounting  for  certain  investments  and
as such do not consolidate their revenue for financial reporting purposes. Our share of profits from these investments is reported in “Income from
equity method investments” and is therefore reflected in Net Income and EBITDA.

(3) EBITDA  represents  earnings  before  interest  expense,  income  taxes,  depreciation  and  amortization.  As  a  measure  of  liquidity,  we  believe  that
EBITDA  is  useful  as  an  indicator  of  our  ability  to  service  debt,  make  new  investments  and  meet  working  capital  requirements.  EBITDA  is  not
a  measure  of  liquidity  under  generally  accepted  accounting  principles  and  should  not  be  considered  an  alternative  to  cash  flow  from  operations.
EBITDA, as calculated by us, may not be consistent with computations of EBITDA by other companies. Our use of EBITDA, including a reconcil-
iation to cash flow from operations, is discussed in greater detail in “Liquidity and Capital Resources.”

35

Revenue

Our revenue is generally determined by the level of our assets

under  management,  the  portion  of  our  assets  across  our

products and three operating segments, which realize differ-

ent fee rates, and the recognition of any performance fees.

The  increase  in  revenue  of  $100.8  million  (or  25%)  in

2006 from 2005 resulted principally from a 27% increase

in  average  assets  under  management.  The  increase  in

average assets under management resulted principally from

positive investment performance, our 2005 investments in

new Affiliates, and positive net client cash flows.

Our  revenue  increased  $199.5  million  (or  17%)  in  2007

from  2006,  primarily  as  a  result  of  a  27%  increase  in

Institutional Distribution Channel

average  assets  under  management.  The  increase  in  average

The increase in revenue of $130.8 million (or 25%) in the

assets under management resulted principally from positive

Institutional  distribution  channel  in  2007  from  2006

investment performance in 2006 and 2007, net client cash

resulted  principally  from  a  35%  increase  in  average  assets

flows in 2006 and, to a lesser extent, our 2006 investment in

under  management.  The  increase  in  average  assets  under

a new Affiliate. The increase in revenue was proportionately

management resulted principally from positive investment

less than the growth in assets under management primarily as

performance  in  2006  and  2007,  net  client  cash  flows  in

a  result  of  our  equity  method  investments,  as  we  do  not

2006 and, to a lesser extent, our 2006 investment in a new

consolidate the revenue or expenses of these Affiliates.

Affiliate. The  increase  in  revenue  was  proportionately  less

than the increase in assets under management primarily as

The  increase  in  revenue  of  $253.9  million  (or  28%)  in

a  result  of  our  equity  method  investments,  as  we  do  not

2006 from 2005 resulted principally from a 35% increase

consolidate revenue or expenses of such Affiliates.

in average assets under management. The increase in average

assets  under  management  was  primarily  attributable  to

Our  revenue  increased  $129.1  million  (or  33%)  in

positive investment performance and net client cash flows

2006 from 2005, primarily as a result of a 41% increase in

and,  to  a  lesser  extent,  our  2005  investments  in  new

average assets under management. The increase in average

Affiliates. The increase in revenue was proportionately less

assets under management resulted principally from positive

than the growth in assets under management primarily as

investment performance and net client cash flows and, to a

a  result  of  our  equity  method  investments,  as  we  do  not

lesser extent, our 2005 investments in new Affiliates. The

consolidate the revenue or expenses of these Affiliates.

increase  in  revenue  was  proportionately  less  than  the

increase in assets under management primarily as a result of

The  following  discusses  the  changes  in  our  revenue  by

our  equity  method  investments,  as  we  do  not  consolidate

operating segments.

revenue or expenses of such Affiliates.

Mutual Fund Distribution Channel

High Net Worth Distribution Channel

The increase in revenue of $56.6 million (or 11%) in the

The  increase  in  revenue  of  $12.1  million  (or  8%)  in  the

Mutual  Fund  distribution  channel  in  2007  from  2006

High Net Worth distribution channel in 2007 from 2006

resulted  principally  from  a  14%  increase  in  average  assets

resulted  principally  from  a  14%  increase  in  average  assets

under  management.  The  increase  in  average  assets  under
management resulted principally from positive investment

under  management.  The  increase  in  average  assets  under
management resulted principally from positive investment

performance.

performance. The increase in revenue was proportionately

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36

 
 
 
 
less than the increase in assets under management primari-

under  management  resulted  principally  from  our  2005

ly as a result of our equity method investments, as we do

investments in new Affiliates and positive investment per-

not consolidate the revenue or expenses of these Affiliates,

formance. The increase in revenue was proportionately less

and  increases  in  assets  under  management  that  realize  a

than the increase in assets under management primarily as

comparatively lower fee rate.

a  result  of  our  equity  method  investments,  as  we  do  not

consolidate the revenue or expenses of these Affiliates, and

Our  revenue  increased  $24.0  million  (or  18%)  in  2006

increases in assets under management that realize a compar-

from 2005 primarily as a result of a 28% increase in aver-

atively lower fee rate.

age assets under management. The increase in average assets

Operating Expenses

The following table summarizes our consolidated operating expenses:

(in millions)

Compensation and related expenses
Selling, general and administrative
Amortization of intangible assets
Depreciation and other amortization
Other operating expenses

Total operating expenses

2005

$365.9
162.1
24.9
7.0
21.5

$581.4

2006

% Change

2007

% Change

$ 472.4 
184.0
27.4
8.7
23.9

$ 716.4

29%
14%
10%
24%
11%

23%

$579.4
198.0
31.7
10.4
18.8

$838.3

23%
8%
16%
20%
(21)%

17%

The  substantial  portion  of  our  operating  expenses  is

Compensation and related expenses increased 23% in 2007

incurred by our Affiliates, the majority of which is incurred

and 29% in 2006. These increases were primarily a result of

by  Affiliates  with  revenue  sharing  arrangements.  For

the relationship between revenue and operating expenses at

Affiliates with revenue sharing arrangements, an Affiliate’s

our  Affiliates  with  revenue  sharing  arrangements,  which

Operating  Allocation  percentage  generally  determines  its

experienced aggregate increases in revenue and accordingly,

operating expenses. Accordingly, our compensation expense

reported higher compensation expense. The increases were

is  generally  impacted  by  increases  or  decreases  in  each

also related to increases in aggregate Affiliate expenses from

Affiliate’s  revenue  and  the  corresponding  increases  or

our  new  investments  ($13.4  million  in  2007  and  $12.8

decreases in their respective Operating Allocations. During

million  in  2006).  In  2007,  the  increase  in  compensation

2007, approximately $322.6 million, or about 56% of our

was  proportionately  greater  than  the  increase  in  revenue

consolidated compensation expense, was attributable to our

because of an increase in revenue at Affiliates with higher

Affiliate managers. The percentage of revenue allocated to

Operating Allocations. Unrelated to the changes in revenue,

operating expenses varies from one Affiliate to another and

the increase in 2007 was also attributable to a $7.4 million

may  vary  within  an  Affiliate  depending  on  the  source  or
amount  of  revenue.  As  a  result,  changes  in  our  aggregate

revenue  may  not  impact  our  consolidated  operating

expenses to the same degree.

increase in share-based compensation.

37

Selling,  general  and  administrative  expenses  increased  8%

Depreciation  and  other  amortization  increased  20%  in

in  2007  and  14%  in  2006,  principally  as  a  result  of  the

2007  and  24%  in  2006. These  increases  were  principally

growth in assets under management at our Affiliates in the

attributable  to  spending  on  depreciable  assets  in  recent

Mutual  Fund  distribution  channel.  Selling,  general  and

periods. The increase in 2006 was also attributable to our

administrative expenses also increased in 2007 as a result of

2005 investments in new Affiliates.

$1.0 million of expenses related to our global distribution

initiatives. These  increases  were  partially  offset  by  a  $6.7

Other  operating  expenses  decreased  21%  in  2007  princi-

million  decrease  in  aggregate  Affiliate  expenses  from  the

pally  as  a  result  of  benefits  realized  upon  the  transfer  of

transfer  of  our  interests  in  certain  Affiliates  during  2006

Affiliate  interests  during  2007  as  well  as  a  $0.8  million

and 2007.

recovery  of  Affiliate  expenses  that  previously  reduced  our

share of Owners’ Allocation. These decreases were partially

Amortization  of  intangible  assets  increased  16%  in  2007

offset  by  a  $0.7  million  increase  in  aggregate  Affiliate

and 10% in 2006, principally from an increase in definite-

expenses  from  our  2006  investment  in  Chicago  Equity

lived  intangible  assets  resulting  from  our  investments  in

Partners. Other operating expenses increased 11% in 2006

new and existing Affiliates during 2005 and 2006.

principally as a result of a $1.1 million increase in operat-

ing  expenses  from  our  new  investments  in  2005  and

expenses related to other Affiliate transactions.

Other Income Statement Data

The following table summarizes non-operating income and expense data:

(in millions)

Income from equity method investments
Investment and other income
Investment income from

Affiliate investments in partnerships

Minority interest in

Affiliate investments in partnerships

Minority interest
Interest expense
Income tax expense

2005

$ 27.0
8.9

0.4

—
144.3
37.4
70.6

$

2006

38.3
16.9

3.4

3.4
212.5
58.8
86.6

% Change

2007

% Change

42%
90%

750%

—
47%
57%
23%

$ 58.2
17.1

52%
1%

38.9

1,044%

38.1
242.0
76.9
106.9

1,021%
14%
31%
23%

Income  from  equity  method  investments  consists  of  our

Investment and other income primarily consists of earnings

share of income from Affiliates that are accounted for under

on  cash  and  cash  equivalent  balances  and  earnings  that

the equity method of accounting, net of any related intangi-

Affiliates  realize  on  investments  in  marketable  securities.

ble amortization. Income from equity method investments

Investment  and  other  income  increased  1%  in  2007  and

increased  52%  in  2007  and  42%  in  2006  principally  as  a
result of increases in assets under management and revenue

90%  in  2006.  The  increase  in  2006  resulted  principally
from  an  increase  in  Affiliate  investment  earnings  of  $6.4

attributable  to  Affiliates  that  are  accounted  for  under  the

million, and earnings of $1.6 million on investments held

equity method of accounting, including investments in our

by new Affiliates.

new Affiliates.

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As  discussed  in  Note  1  to  the  Consolidated  Financial

Net Income

Statements, Investment income from Affiliate investments

The  following  table  summarizes  Net  Income  for  the  past

in  partnerships  and  Minority  interest  in  Affiliate  invest-

three years:

ments in partnerships relate to the consolidation of certain

investment partnerships in which our Affiliates serve as the

(in millions)

2005

2006 % Change

2007 % Change

general  partner.  For  2007  and  2006,  the  income  from

Affiliate investments in partnerships was $38.9 million and

$3.4 million, respectively, which was principally attributable

to investors who are unrelated to us.

Minority interest increased 14% in 2007 and 47% in 2006,

principally as a result of the previously discussed increases

in  revenue.  In  2006,  the  increase  was  proportionately

Net Income

$119.1

$151.3

27% $182.0

20%

Net Income increased 20% in 2007 and 27% in 2006, prin-

cipally as a result of increases in revenue and income from

equity  method  investments,  partially  offset  by  increases  in

reported  operating,  interest,  minority  interest  and  tax

expenses, as described above.

greater  than  the  increase  in  revenue  because  certain

Supplemental Performance Measure

Affiliates  reported  expenses  that  were  less  than  their

As  supplemental  information,  we  provide  a  non-GAAP

Operating Allocation, resulting in higher profits attributable

performance measure that we refer to as Cash Net Income.

to  our  Affiliate  management  partners.  In  2007,  these

This  measure  is  provided  in  addition  to,  but  not  as  a

Affiliates  reported  expenses  that  were  equal  to  their

substitute for, Net Income. Cash Net Income is defined as

Operating Allocation.

Net Income plus amortization and deferred taxes related to

intangible  assets  plus  Affiliate  depreciation.  We  consider

Interest  expense  increased  31%  in  2007,  principally  from

Cash  Net  Income  an  important  measure  of  our  financial

borrowings under our senior credit facility ($11.5 million in

performance,  as  we  believe  it  best  represents  operating

2007), the October 2007 issuance of $500 million of junior

performance  before  non-cash  expenses  relating  to  our

convertible trust preferred securities ($5.4 million in 2007)

acquisition of interests in our Affiliates. Cash Net Income

and  the  April  2006  issuance  of  $300  million  of  junior

is  used  by  our  management  and  Board  of  Directors  as  a

convertible trust preferred securities ($3.5 million in 2007).

principal performance benchmark, including as a measure

These  increases  were  partially  offset  by  a  $3.1  million

for aligning executive compensation with stockholder value.

decrease  in  interest  expense  from  repayment  of  our  Senior

Notes  due  2006.  The  increase  in  2006  was  principally

Since  our  acquired  assets  do  not  generally  depreciate  or

attributable  to  the  $300  million  junior  convertible  trust

require replacement by us, and since they generate deferred

preferred securities ($11.4 million in 2006) and increases in

tax expenses that are unlikely to reverse, we add back these

borrowings  under  our  senior  credit  facility  ($7.2  million

non-cash  expenses  to  Net  Income  to  measure  operating

in 2006).

performance.  We  add  back  amortization  attributable  to

acquired client relationships because this expense does not

Income taxes increased 23% in 2007 and 2006 principally

correspond to the changes in value of these assets, which

as  a  result  of  the  increases  in  net  income  before  taxes  of

do  not  diminish  predictably  over  time.  The  portion  of

21%  and  25%,  respectively.  The  increase  in  2006  was

deferred  taxes  generally  attributable  to  intangible  assets

partially offset by a $1.4 million reduction in income taxes

(including goodwill) that we no longer amortize but which

from a decrease in Canadian federal income tax rates, which

continues  to  generate  tax  deductions  is  added  back,

reduction did not recur in 2007.

because these accruals would be used only in the event of

39

a future sale of an Affiliate or an impairment charge, which

Liquidity and Capital Resources 

we consider unlikely. We add back the portion of consoli-

dated  depreciation  expense  incurred  by  our  Affiliates

because under our Affiliates’ operating agreements we are

generally  not  required  to  replenish  these  depreciating

assets. Conversely, we do not add back the deferred taxes

relating to our floating rate senior convertible securities or

other depreciation expenses.

The following table provides a reconciliation of Net Income

to Cash Net Income:

(in millions)

2005

2006

2007

Net Income
Intangible amortization
Intangible amortization—

$119.1
24.9

$151.3
27.4

$182.0
31.6

equity method
investments(1)
Intangible-related
deferred taxes

Affiliate depreciation 

8.5

28.8
4.8

9.3

28.8
5.7

10.4

28.6
6.1

Cash Net Income

$186.1

$222.5

$258.7

(1) As discussed in Note 1 to the Consolidated Financial Statements, we
are  required  to  use  the  equity  method  of  accounting  for  our  invest-
ments  in  AQR,  Beutel,  Deans  Knight,  ValueAct  and  BlueMountain
and, as such, do not consolidate their revenue or expenses (including
intangible amortization expenses) in our income statement. Our share
of these investments’ amortization is reported in “Income from equity
method investments.”

Cash  Net  Income  increased  16%  in  2007  and  20%  in

2006,  primarily  as  a  result  of  the  previously  described

factors affecting Net Income.

The following table summarizes certain key financial data

relating to our liquidity and capital resources:

(in millions)

2005

Balance Sheet Data
Cash and cash equivalents $ 140.4
Senior debt
241.3
Zero coupon

convertible notes

124.2

Floating rate

convertible securities

300.0

Mandatory

convertible securities
Junior convertible trust
preferred securities

Cash Flow Data
Operating cash flows
Investing cash flows
Financing cash flows
EBITDA(1)

300.0

—

$ 204.1
(82.0)
(122.3)
267.5

December 31,
2006

2007

$ 201.7
365.5

$ 223.0
519.5

113.4

300.0

300.0

300.0

78.1

300.0

300.0

800.0

$ 301.0
(165.1)
(75.1)
342.1

$ 326.7
(580.8)
272.5
418.2

(1) The definition of EBITDA is presented in Note 3 on page 35.

We view our ratio of debt to EBITDA (our “leverage ratio”)

as an important gauge of our ability to service debt, make new

investments  and  access  capital.  Consistent  with  industry

practice,  we  do  not  consider  our  mandatory  convertible

securities or our junior convertible trust preferred securities as

debt  for  the  purpose  of  determining  our  leverage  ratio. We

also view our leverage on a “net debt” basis by deducting our

cash and cash equivalents from our debt balance. The leverage

covenant  of  our  senior  credit  facility  is  generally  consistent

with  our  treatment  of  our  mandatory  convertible  securities

and our junior convertible trust preferred securities and our

net  debt  approach.  As  of  December  31,  2007,  our  leverage

ratio was 1.6:1.

Supplemental Liquidity Measure

As  supplemental  information,  we  provide  information

regarding  our  EBITDA,  a  non-GAAP  liquidity  measure.

This  measure  is  provided  in  addition  to,  but  not  as  a

substitute  for,  cash  flow  from  operations.  EBITDA

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40

 
 
 
 
represents  earnings  before  interest  expense,  income  taxes,

of debt securities, the repurchase of shares of our common

depreciation and amortization. EBITDA, as calculated by

stock and for working capital purposes.

us, may not be consistent with computations of EBITDA

by other companies. As a measure of liquidity, we believe

Senior Credit Facility

that EBITDA is useful as an indicator of our ability to serv-

ice debt, make new investments and meet working capital

requirements.  We  further  believe  that  many  investors  use

this  information  when  analyzing  the  financial  position  of

companies in the investment management industry.

The following table provides a reconciliation of cash flow

from operations to EBITDA:

On November 27, 2007, we entered into an amended and

restated  senior  credit  facility  (the  “Facility”). The  Facility

allows  us  to  borrow  an  aggregate  of  $950  million.  The

Facility  is  comprised  of  a  $750  million  revolving  credit

facility (the “Revolver”) and a $200 million term loan (the

“Term Loan”). We pay interest on these obligations at spec-
ified rates (based either on the Eurodollar rate or the prime

rate as in effect from time to time) that vary depending on

2005

2006

2007

our  credit  rating. The Term  Loan  requires  principal  pay-

(in millions)

Cash Flow

from Operations

$204.1

$301.0

$326.7

Interest expense,

net of non-cash items(1)

Current tax provision
Income from equity

method investments,
net of distributions(2)

Changes in assets and
liabilities and other
adjustments(3)

EBITDA(4)

32.5
38.9

53.6
55.2

70.9
74.6

18.9

1.6

15.0

(26.9)

$267.5

(69.3)

$342.1

(69.0)

$418.2

(1) Non-cash items represent amortization of issuance costs and interest
accretion  ($4.9,  $5.2  and  $6.0  million  in  2005,  2006  and  2007,
respectively).

(2) Distributions from equity method investments were $16.6, $46.0 and

$53.6 million for 2005, 2006 and 2007, respectively.

(3) Other  adjustments  include  stock  option  expenses,  tax  benefits  from
stock options and other adjustments to reconcile Net Income to cash
flow from operating activities.

(4) The definition of EBITDA is presented in Note 3 on page 35.

ments to be made at specified dates until maturity. Subject

to the agreement of lenders to provide additional commit-

ments, we have the option to increase the Facility by up to

an additional $250 million.

The  Facility  will  mature  in  February  2012,  and  contains

financial covenants with respect to leverage and interest cov-

erage. The Facility also contains customary affirmative and

negative  covenants,  including  limitations  on  indebtedness,

liens,  cash  dividends  and  fundamental  corporate  changes.

Borrowings under the Facility are collateralized by pledges of

the substantial majority of our capital stock or other equity

interests  owned  by  us.  As  of  December  31,  2007,  we  had

$519.5 million outstanding under our Facility.

Zero Coupon Senior Convertible Notes

In 2001, we issued $251 million principal amount at matu-

In 2007, we met our cash requirements primarily through

rity  of  zero  coupon  senior  convertible  notes  due  2021

cash generated by operating activities, the issuance of con-

(“zero coupon convertible notes”), with each note issued at

vertible securities and borrowings of senior debt. Our prin-

90.50% of such principal amount and accreting at a rate of

cipal uses of cash were to repurchase shares of our common

0.50% per year. As of December 31, 2007, $83.5 million

stock,  make  investments  in  new  and  existing  Affiliates,

principal  amount  at  maturity  remain  outstanding.  Each

repay senior debt and make distributions to Affiliate man-
agers. We expect that our principal uses of cash for the fore-

security is convertible into 17.429 shares of our common
stock (at a current base conversion price of $53.68) upon

seeable future will be for investments in new and existing

the occurrence of certain events, including the following: (i)

Affiliates,  distributions  to  Affiliate  managers,  payment  of

if the closing price of a share of our common stock is more

principal and interest on outstanding debt, the repurchase

than a specified price over certain periods (initially $62.36

41

and  increasing  incrementally  at  the  end  of  each  calendar

income  tax  regulations.  These  regulations  required  us  to

quarter  to  $63.08  in  April  2021);  (ii)  if  the  credit  rating

deduct  interest  in  an  amount  greater  than  our  reported

assigned  by  Standard  &  Poor’s  to  the  securities  is  below

interest  expense,  and  resulted  in  annual  deferred  taxes  of

BB-;  or  (iii) if  we  call  the  securities  for  redemption. The

approximately  $3.7  million.  Because  the  trading  price  of

holders may require us to repurchase the securities at their

our  common  stock  exceeded  $60.90  at  the  time  of  the

accreted  value  in  May  2011  and  2016.  If  the  holders

conversions described above, $18.3 million of deferred tax

exercise  this  option  in  the  future,  we  may  elect  to

liabilities attributable to these securities will be reclassified

repurchase the securities with cash, shares of our common

to stockholders’ equity in the first quarter of 2008.

stock or some combination thereof. We have the option to

redeem the securities for cash at their accreted value. Under

2004 Mandatory Convertible Securities

the  terms  of  the  indenture  governing  the  zero  coupon

convertible notes, a holder may convert such security into

common stock by following the conversion procedures in

the indenture; subject to changes in the price of our com-

mon stock, the zero coupon convertible notes may not be

convertible in certain future periods.

In  2006,  we  amended  the  zero  coupon  convertible  notes.

Under  the  terms  of  this  amendment,  we  will  pay  interest

through May 7, 2008 at a rate of 0.375% per year on the

principal amount at maturity of the notes in addition to the

accrual of the original issue discount.

In 2004, we issued $300 million of mandatory convertible

securities  (“2004  PRIDES”),  each  unit  consisting  of  (i)  a

senior note due February 2010 with a principal amount of

$1,000  per  note,  with  interest  payable  quarterly  at  the

annual rate of 4.125%, and (ii) a forward equity purchase

contract pursuant to which the holder agreed to purchase

shares of our common stock in February 2008. The holders’

obligations  under  the  forward  equity  purchase  contracts

were collateralized by the pledge to us of the senior notes.

In the first quarter of 2008, we repurchased the outstanding

senior notes component of our 2004 PRIDES. The repur-

chase  proceeds  were  used  by  the  original  holders  to  fulfill

Floating Rate Senior Convertible Securities

their obligations under the related forward equity purchase

In  2003,  we  issued  $300  million  of  floating  rate  senior

convertible securities due 2033 (“floating rate convertible

securities”)  bearing  interest  at  a  rate  equal  to  3-month

LIBOR minus 0.50%, payable in cash quarterly. In the first

quarter  of  2008,  we  called  the  outstanding  floating  rate

convertible  securities  for  redemption  at  their  principal

amount  plus  accrued  and  unpaid  interest.  In  lieu  of

contracts. Pursuant to the settlement of the forward equity

purchase contracts and other privately negotiated exchanges,

we  have  issued  approximately  4.0  million  shares  of

common stock. All of our 2004 PRIDES have been cancelled

and retired.

Junior Convertible Trust Preferred Securities

redemption, substantially all of the holders elected to convert

In 2006, we issued $300 million of junior subordinated

their  securities.  Pursuant  to  these  conversions  and  other

convertible  debentures  due  2036  to  a  wholly-owned

privately negotiated exchanges, we will issue approximately

trust  simultaneous  with  the  issuance,  by  the  trust,  of

7.0 million shares of common stock and all of our floating

$291 million of convertible trust preferred securities to

rate convertible securities will be cancelled and retired.

investors.  The  junior  subordinated  convertible  deben-
tures and convertible trust preferred securities (together,

The  floating  rate  senior  convertible  securities  are  consid-

the “2006 junior convertible trust preferred securities”)

ered  contingent  payment  debt  instruments  under  federal

have substantially the same terms.

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42

 
 
 
 
The 2006 junior convertible trust preferred securities bear

redeemed if the closing price of our common stock exceeds

interest at 5.1% per annum, payable quarterly in cash. Each

$260  per  share  for  a  specified  period  of  time. The  trust’s

$50 security is convertible, at any time, into 0.333 shares of

only  assets  are  the  2007  junior  convertible  subordinated

our common stock, which represents a conversion price of

debentures. To the extent that the trust has available funds,

$150 per share (or a 48% premium to the then prevailing

we are obligated to ensure that holders of the 2007 junior

share  price  of  $101.45).  Upon  conversion,  investors  will

convertible  trust  preferred  securities  receive  all  payments

receive cash or shares of our common stock (or a combina-

due from the trust.

tion of cash and common stock) at our election. The 2006

junior  convertible  trust  preferred  securities  may  not  be

The 2006 and 2007 junior convertible trust preferred secu-

redeemed by us prior to April 15, 2011. On or after April

rities are considered contingent payment debt instruments

15, 2011, they may be redeemed if the closing price of our

under the federal income tax regulations. We are required

common stock exceeds $195 per share for a specified peri-

to deduct interest in an amount greater than our reported

od of time. The trust’s only assets are the junior convertible

interest  expense.  In  2008,  these  deductions  will  generate

subordinated  debentures. To  the  extent  that  the  trust  has

deferred taxes of approximately $8.5 million.

available funds, we are obligated to ensure that holders of

the 2006 junior convertible trust preferred securities receive

all payments due from the trust.

In October 2007, we issued an additional $500 million of

junior subordinated convertible debentures due 2037 to a

wholly-owned trust simultaneous with the issuance, by the

trust, of $500 million of convertible trust preferred securities

to investors. The junior subordinated convertible debentures

and  convertible  trust  preferred  securities  (together,  the

“2007  junior  convertible  trust  preferred  securities”)  have

substantially the same terms.

The 2007 junior convertible trust preferred securities bear

interest  at  5.15%  per  annum,  payable  quarterly  in  cash.

Each  $50  security  is  convertible,  at  any  time,  into  0.25

shares of our common stock, which represents a conversion

price  of  $200  per  share  (or  a  53%  premium  to  the  then

prevailing  share  price  of  $130.77).  Upon  conversion,

Call Spread Option Agreements

In 2006, we entered into a series of contracts that provided

the  option,  but  not  the  obligation,  to  repurchase  up  to

917,000 shares of our common stock at a weighted average

price of $99.59 per share at specified times. Upon exercise,

we could elect to receive the intrinsic value of a contract in

cash or common stock. During 2007, we exercised 917,000

options  with  a  total  intrinsic  value  of  $21.1  million.  We

elected to receive approximately 116,000 shares of common

stock  and  used  the  remaining  proceeds  ($6.8  million)  to

enter  into  another  series  of  contracts  that  provide  the

option, but not the obligation, to repurchase up to 800,000

shares of its common stock at a weighted average price of

$120.89 per share. These options may be exercised or will

expire during the first quarter of 2008.

Forward Purchase Contract

investors will receive cash or shares of our common stock

In October 2007, we entered into a prepaid forward pur-

(or  a  combination  of  cash  and  common  stock)  at  our

chase contract, pursuant to which we purchased 1,578,300

election.  The  2007  junior  convertible  trust  preferred

shares  of  common  stock  for  approximately  $206  million.

securities may not be redeemed by us prior to October 15,
2012.  On  or  after  October  15,  2012,  they  may  be

We have the option to settle the forward purchase contract
on or before October 15, 2012.

43

Purchases of Affiliate Equity

Many  of  our  Affiliate  operating  agreements  provide  our

Affiliate  managers  the  conditional  right  to  require  us  to

purchase their retained equity interests at certain intervals.

These  agreements  also  provide  us  a  conditional  right  to

require  Affiliate  managers  to  sell  their  retained  equity

approval  or  other  restrictions.  These  potential  purchases,

combined  with  our  other  cash  needs,  may  require  more

cash  than  is  available  from  operations,  and  therefore,  we

may need to raise capital by making borrowings under our

Facility,  by  selling  shares  of  our  common  stock  or  other

equity or debt securities, or to otherwise refinance a portion

interests to us upon their death, permanent incapacity or

of these purchases.

termination  of  employment  and  provide  Affiliate  man-

agers  a  conditional  right  to  require  us  to  purchase  such

Operating Cash Flow

retained equity interests upon the occurrence of specified

events.  These  purchases  may  occur  in  varying  amounts

over a period of approximately 15 years (or longer), and

the actual timing and amounts of such purchases (or the

actual occurrence of such purchases) generally cannot be

predicted with any certainty. These purchases are generally

calculated  based  upon  a  multiple  of  the  Affiliate’s  cash

flow distributions at the time the right is exercised, which

is intended to represent fair value. As one measure of the

potential magnitude of such purchases, in the event that a

triggering  event  and  resulting  purchase  occurred  with

respect to all such retained equity interests as of December

31, 2007, the aggregate amount of these payments would

have totaled approximately $1,470.1 million. In the event

that  all  such  transactions  were  consummated,  we  would

own the cash flow distributions attributable to the additional

equity interests purchased from our Affiliate managers. As of

December 31, 2007, this amount would represent approxi-

mately $204.4 million on an annualized basis. We may pay

for these purchases in cash, shares of our common stock or

other forms of consideration. Affiliate management partners

Cash flow from operations generally represents Net Income
plus  non-cash  charges  for  amortization,  deferred  taxes,

equity-based  compensation  and  depreciation,  as  well  as

increases and decreases in our consolidated working capital.

The increase in cash flow from operations in 2007 as com-

pared  to  2006  resulted  principally  from  increased  Net

Income of $30.7 million and increased minority interest of

$29.1 million, partially offset by a $44.8 million increase in

payments  of  liabilities.  The  increase  in  cash  flow  from

operations  for  the  year  ended  2006  as  compared  to  2005

resulted  principally  from  increased  Net  Income  of  $32.2

million  and  increased  net  distributions  from  our  equity

method investments of $18.1 million, partially offset by a

decrease in minority interest of $16.1 million.

In  accordance  with  EITF  04-05,  we  consolidated  $134.7

and  $108.4  million  of  client  assets  held  in  partnerships

controlled by our Affiliates as of December 31, 2007 and

2006,  respectively.  Sales  of  client  assets  generated  $12.8

and $7.7 million of operating cash flow in 2007 and 2006,

are  also  permitted  to  sell  their  equity  interests  to  other

respectively.

individuals  or  entities  in  certain  cases,  subject  to  our

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Investing Cash Flow

Changes in net cash flow used in investing activities result

primarily  from  our  investments  in  new  and  existing

Affiliates.  Net  cash  flow  used  to  make  investments  was

$556.7 million, $123.3 million and $85.2 million for the

years ended December 31, 2007, 2006 and 2005, respec-

tively.  These  investments  were  funded  with  borrowings

under  our  senior  credit  facility  and  existing  cash.  The

increase  in  net  cash  flows  used  in  investing  activities  in

2007  was  partially  offset  by  decreased  purchases  by  our
Affiliates in investment securities.

We  may  make  payments  in  connection  with  our  future

investments. We are also contingently liable, upon achieve-

ment of specified financial targets, to make additional pur-

chase payments of up to $232 million through 2011. The

specified financial targets for certain agreements are meas-

ured beginning December 31, 2007, and we expect we will

make payments of up to $70 million in 2008.

Financing Cash Flow

Net  cash  flows  from  financing  activities  increased  $347.6

million in 2007 as compared to 2006, primarily as a result

of our $500 million issuance of junior convertible trust pre-

ferred securities and a net increase in borrowings under our

Revolver of $154.0 million, partially offset by $436.0 mil-

lion of repurchases of our common stock. The decrease in

cash flows used in financing activities in 2006 from 2005

was primarily as a result of $536.5 million of repurchases of

our common stock, a use of cash that was financed by our

$300 million issuance of junior convertible trust preferred

securities  and  a  net  increase  of  borrowings  under  our

Facility of $190.0 million.

In  accordance  with  Statement  of  Financial  Accounting

Standards No. 123 (revised 2004), “Share-Based Payment”

(“FAS 123R”), beginning in 2006, certain tax benefits asso-

ciated with stock options have been reported as financing

cash flows in the amount of $36.5 million and $23.0 mil-

lion as of December 31, 2007 and 2006, respectively.

As more fully discussed in “Liquidity and Capital Resources,”

in the first quarter of 2008 we retired $300 million of our

2004 PRIDES and will retire $300 million of floating rate

convertible  securities  principally  through  the  issuance  of

approximately 11.0 million shares of common stock.

45

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2007:

(in millions)

Senior debt(1)
Senior convertible securities(1)(2)
Mandatory convertible securities(1)(3)(4)
Junior convertible trust preferred securities(1)(3)
Purchases of Affiliate equity(5)
Leases
Other liabilities(6)

Total

Total

$ 519.5
384.4
327.4
2,000.2
1,470.1
110.5
71.1

$4,883.2

Payments Due

2008

2009–2010

2011–2012

Thereafter

$ 20.0
0.9
13.4
41.1
120.3
20.2
70.0

$285.9

$

60.0
—
314.0
82.1
688.0
37.1
1.1

$1,182.3

$439.5
—
—
82.1
230.3
25.7
—

$777.6

$ —
383.5
—
1,794.9
431.5
27.5
—

$2,637.4

(1) The timing of debt payments assumes that outstanding debt is settled for cash or common stock at the applicable maturity dates. The amounts include

the cash payment of fixed interest.

(2) In  the  first  quarter  of  2008,  we  will  issue  approximately  7.0  million  shares  of  our  common  stock  in  connection  with  conversions  and  privately
negotiated exchanges of our floating rate convertible securities. Following consummation of these transactions, all of our floating rate convertible
securities will be cancelled and retired and no further obligations will remain with respect thereto.

(3) As more fully discussed on page 40, consistent with industry practice, we do not consider our mandatory convertible securities or our junior convert-

ible trust preferred securities as debt for the purpose of determining our leverage ratio.

(4) In the first quarter of 2008, we issued approximately 4.0 million shares of common stock in connection with privately negotiated exchanges of our
mandatory convertible securities and the settlement of the forward equity purchase contracts by holders of these securities. All of our mandatory
convertible securities have been cancelled and retired and no further obligations remain with respect thereto.

(5) Purchases of Affiliate equity reflect our estimates of conditional purchases of additional equity in our Affiliates and assume that all conditions to such
purchases are met and that such purchases will all be effected on the date that they are exercisable. As described previously, these purchases may occur
in  varying  amounts  over  the  next  15  years  (or  longer),  and  the  actual  timing  and  amounts  of  such  purchases  (or  the  actual  occurrence  of  such
purchases) generally cannot be predicted with any certainty. Additionally, in many instances we have the discretion to settle these purchases with our
common stock and in all cases can consent to the transfer of these interests to other individuals or entities. As one measure of the potential magni-
tude of such purchases, assuming that all such purchases had been effected as of December 31, 2007, the aggregate purchase amount would have
totaled approximately $1,470.1 million. Assuming the closing of such additional purchases, we would own the prospective cash flow distributions
associated with all additional equity so purchased, estimated to be approximately $204.4 million on an annualized basis as of December 31, 2007.

(6) Other  liabilities  reflect  amounts  payable  to  Affiliate  managers  related  to  our  purchase  of  additional  Affiliate  equity  interests. This  table  does  not

include liabilities for uncertain tax positions ($22.5 million as of December 31, 2007) as we cannot predict when such liabilities will be paid.

Market Risk 

Our revenue is derived primarily from fees which are based

on  the  market  values  of  assets  under  management.  Such

values  are  affected  by  changes  in  financial  markets,  and

accordingly declines in the financial markets will negatively

impact our revenue and Net Income. The broader financial

markets are affected, in part, by changing interest rates. We

cannot predict the effects that interest rates or changes in

interest rates may have on either the broader financial markets

or our Affiliates’ assets under management and associated fees.

interest on our floating rate senior convertible securities. We

have fixed rates of interest on our zero coupon senior con-

vertible  notes  and  on  both  of  our  junior  convertible  trust

preferred securities. We have also paid fixed rates of interest

on the senior notes component of our 2004 PRIDES.

From  time  to  time,  we  seek  to  manage  our  exposure  to

changing interest rates by entering into interest rate hedg-

ing  contracts.  For  example,  through  February  2008,  we

were a party to interest rate hedging contracts with a $150

million notional amount, which fixed the interest rate on a

We  pay  a  variable  rate  of  interest  on  our  senior  credit

portion of our floating rate senior convertible securities to

facility  ($519.5  million  outstanding  as  of  December  31,

a weighted average interest rate of approximately 3.28% for

2007) and, until February 2008, have paid a variable rate of

the  period  from  February  2005  to  February  2008.  As  of

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46

 
 
 
 
December 31, 2007, the unrealized gain on these contracts

(“FAS 157”). FAS 157 establishes a framework for measur-

was $0.3 million.

ing fair value applicable to other accounting standards that

use  fair  value  measurements.  In  February  2008,  the  FASB

We estimate that a 100 basis point (1%) change in interest

issued FASB Staff Position No. FAS 157-2, “Effective Date

rates would result in a net annual change to interest expense

of FASB Statement No. 157,” which deferred the effective

related  to  our  variable  rate  borrowings  of  approximately

date  of  FAS  157  for  one  year  for  nonfinancial  assets  and

$6.7 million. While a change in market interest rates would

liabilities, except those that are recognized or disclosed at fair

not  affect  the  interest  expense  incurred  on  our  fixed  rate

value  in  the  financial  statements  on  a  recurring  basis.  We

securities, such a change may affect the fair value of these

will be subject to certain of the provisions of FAS 157 in the

securities. We estimate that a 100 basis point (1%) change

first quarter of 2008. This standard is not expected to have

in interest rates would result in a net change in the value of

a material impact on our consolidated financial statements,

our fixed rate securities of approximately $20.5 million. We

but will require certain additional disclosures.

estimate that a 100 basis point (1%) change in interest rates

would result in a net change in the unrealized value of our

In February 2007, the FASB issued Statement of Financial

current  hedging  contracts  of  approximately  $8.0  million.

Accounting Standards No. 159, “The Fair Value Option for

There can be no assurance that our hedging contracts will

Financial  Assets  and  Financial  Liabilities — Including

meet their overall objective of reducing our interest expense

an amendment of FASB Statement No. 115” (“FAS 159”).

or that we will be successful in obtaining hedging contracts

FAS  159  permits  companies  to  measure  many  financial

in the future on our existing or any new indebtedness.

instruments and  certain  other  items  at  fair  value.  We  will

We  operate  primarily  in  the  United  States,  and  accordingly

not expected to have a material impact on our consolidated

adopt FAS 159 in the first quarter of 2008. This standard is

most of our consolidated revenue and associated expenses are

financial statements.

denominated  in  U.S.  dollars.  We  also  provide  services  and

earn  revenue  outside  of  the  United  States;  therefore,  the

In December 2007, the FASB issued Statement of Financial

portion of our revenue and expenses denominated in foreign

Accounting  Standards  No.  141  (revised  2007),  “Business

currencies  may  be  impacted  by  movements  in  currency

Combinations” (“FAS 141R”). FAS 141R will change the

exchange  rates.  The  valuations  of  our  foreign  Affiliates  are

accounting  for  business  combinations  in  a  number  of

impacted  by  fluctuations  in  foreign  exchange  rates,  which

respects,  including  the  way  entities  account  for  business

could be recorded as a component of stockholders’ equity. To

combinations  achieved  in  stages  by  requiring  the  identifi-

illustrate the effect of possible changes in currency exchange

able  assets  and  liabilities  to  be  measured  at  their  full  fair

rates, as of December 31, 2007, we estimate that a 1% change

values on the acquisition date. In addition, FAS 141R will

in  the  Canadian  dollar  to  U.S.  dollar  exchange  rate  would

change the treatment of contingent consideration, contin-

result in approximately a $3.4 million change to stockholders’

gencies,  acquisition  costs,  and  restructuring  costs.  FAS

equity and a $0.5 million change to income before income

141R will be applied prospectively to any business combi-

taxes.  During  2007,  changes  in  currency  exchange  rates

nation completed after December 31, 2008. The impact of

increased stockholders’ equity by $51.5 million.

this standard will depend upon the nature, terms and size

of business combinations completed after the effective date.

Recent Accounting Developments

In December 2007, the FASB issued Statement of Financial

In September 2006, the FASB issued Statement of Financial

Accounting Standards No. 160, “Noncontrolling Interests

Accounting Standards No. 157, “Fair Value Measurements”

in  Consolidated  Financial  Statements,  an  amendment  of

47

ARB  No.  51”  (“FAS  160”).  FAS  160  will  change  the

Additionally, we make assumptions of, among other factors,

accounting  and  reporting  for  minority  or  noncontrolling

projected future earnings and cash flow, valuation multiples,

interests. Upon adoption, these interests will be classified as

tax  benefits  and  discount  rates.  In  certain  instances,  we

a  separate  component  within  stockholders’  equity  and

engage  third  party  consultants  to  perform  independent

transactions  between  controlling  interest  and  minority

evaluations.  The  impact  of  many  of  these  assumptions  is

interest holders will be accounted for within stockholders’

material to our financial condition and operating perform-

equity. We will adopt FAS 160 in the first quarter of 2009

ance  and,  at  times,  is  subjective.  If  we  used  different

and are currently evaluating the impact that this standard

assumptions,  the  carrying  value  of  our  equity  method

will have on our consolidated financial statements.

investments, our intangible assets and the related amorti-

Critical Accounting Estimates and Judgments

The preparation of financial statements and related disclo-

sures  in  conformity  with  accounting  principles  generally

accepted  in  the  United  States  requires  us  to  make  judg-

zation  could  be  stated  differently  and  our  impairment

conclusions  could  be  modified.  Additionally,  the  use  of

different  assumptions  to  value  our  minority  interests  could

change  the  amount  of  compensation  expense,  if  any,  we

report upon their transfer.

ments, assumptions, and estimates that affect the amounts

Intangible Assets

reported  in  the  Consolidated  Financial  Statements  and

At  December  31,  2007,  the  carrying  amounts  of  our

accompanying notes. Note 1 to the Consolidated Financial

intangible asset balances are as follows:

Statements describes the significant accounting policies and

methods  used  in  the  preparation  of  the  Consolidated

(in millions)

Financial Statements. We consider the accounting policies

described below to be our critical accounting estimates and

judgments. These policies are affected significantly by judg-

ments, assumptions, and estimates used in the preparation

of the Consolidated Financial Statements and actual results

could differ materially from the amounts reported based on

these policies.

Valuation

Definite-lived acquired client relationships

Indefinite-lived acquired client relationships

Goodwill

$

233.2

263.4

1,230.4

These  amounts  exclude  $234.7  million  of  definite-lived

acquired  client  relationships,  and  $572.3  million  of

goodwill  that  are  reported  within  Equity  investments

in Affiliates.

We amortize our definite-lived acquired client relationships

In allocating the purchase price of our investments and test-

over their expected useful lives. We reassess these lives each

ing  our  assets  for  impairment,  we  make  estimates  and

quarter based on historical and projected attrition rates and

assumptions to determine the value of our acquired client

other  events  and  circumstances  that  may  influence  the

relationships,  operating  segments,  and  equity  method

expected  future  economic  benefit  we  will  derive  from  the

investments. We also assess the value of minority interests

relationships. Significant judgment is required to estimate

held by our Affiliate managers in establishing the terms for

their transfer.

the period that these assets will contribute to our cash flows
and the pattern over which these assets will be consumed.

A change in the remaining useful life of any of these assets

In these valuations, we make assumptions of the growth rates

could  have  a  significant  impact  on  the  amount  of  our

and useful lives of existing and prospective client accounts.

amortization  expense.  For  example,  if  we  reduced  the

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48

 
 
 
 
weighted  average  remaining  life  of  our  definite-lived

Equity Method Investments

acquired client relationships by one year, our amortization

expense would increase by approximately $4.8 million per

year.  We  assess  each  of  our  definite-lived  acquired  client

relationships for impairment at least annually by comparing

their  carrying  value  to  their  projected  undiscounted  cash

flows.  In  the  fourth  quarter  of  2007,  we  performed  our

most  recent  annual  impairment  test,  and  no  impairments

were identified.

For certain of our Affiliates, where we own a minority inter-

est and have the ability to participate in decision making,

we apply the equity method of accounting. Accordingly, we

evaluate  these  investments  for  impairment  by  assessing

whether the fair value of the investment has declined below

its carrying value for a period considered to be other than

temporary. Additionally, we would consider the magnitude

of  any  decline  in  market  value  and  the  expected  holding

period of the investment.

We  do  not  amortize  our  indefinite-lived  acquired  client

relationships  because  we  expect  these  contracts  will  con-

If  we  determine  that  a  decline  in  market  value  below  our

tribute  to  our  cash  flows  indefinitely.  Each  quarter,  we

carrying value is other than temporary, an impairment charge

assess whether events and circumstances have occurred that

would  be  recognized  in  the  Consolidated  Statements  of

indicate  these  relationships  might  have  a  definite  life. We

Income to write down the carrying value of the investment

test  the  carrying  amount  of  each  of  our  indefinite-lived

to its fair value. In the fourth quarter of 2007, we completed

acquired  client  relationships  at  least  annually,  or  at  such

our  evaluation  of  investments  accounted  for  under  the

time that we conclude the assets no longer have an indefinite

equity method and no impairments were identified.

life by comparing the carrying amount of each asset to its

fair value. We derive the fair value of each of our indefinite-

Income Taxes 

lived  acquired  client  relationships  primarily  based  on  dis-

counted cash flow analysis. Our valuation analysis reflects

assumptions of the growth of the assets, discount rates and

other factors. Changes in the estimates used in these valua-

tions could materially affect the impairment conclusion. In

the fourth quarter of 2007, we performed our most recent

annual impairment test and no impairments were identified.

Our overall tax position requires analysis by management to

estimate the expected realization of income  tax assets and

liabilities.  Tax  regulations  often  require  items  of  income

and expense to be included in our tax returns in different

amounts and in different periods than are reflected in the

financial statements. Additionally, we must assess whether

to recognize the benefit of an uncertain tax position, and, if

so, the appropriate amount of the benefit.

We test the carrying amount of the goodwill in each of our

three  operating  segments  at  least  annually  by  comparing

In  our  assessment  of  whether  to  recognize  the  benefit  of

their  carrying  amount  to  an  estimate  of  fair  value.  We

an uncertain tax position, we consider the probability that

establish  the  fair  value  of  each  of  our  operating  segments

a  tax  authority  would  sustain  the  tax  position  in  an

primarily based on price-earnings multiples. Changes in the

examination.  For  tax  positions  meeting  a  “more-likely-

estimates  used  in  this  test  could  materially  affect  our

than-not” threshold, the amount recognized in the financial

impairment  conclusion.  In  the  third  quarter  of  2007,  we

statements  is  the  benefit  expected  to  be  realized  upon

performed our most recent annual impairment test and no
impairments were identified.

ultimate settlement with the tax authority. For tax positions
not meeting this threshold, no benefit is recognized.

49

Deferred  taxes  are  established  to  reflect  the  differences  in

realize the benefit of a deferred tax asset, we would establish

timing  between  the  inclusion  of  items  of  income  and

a valuation allowance that would increase our tax expense

expense in the financial statements and their reporting on

in the period of such determination. As of December 31,

our  tax  returns.  Our  deferred  tax  liabilities  are  generated

2007,  we  had  a  valuation  allowance  for  all  state  tax  loss

primarily  from  tax-deductible  intangible  assets  and  from

carryforwards.

our  convertible  securities.  As  more  fully  described  below,

we  generally  believe  that  our  intangible-related  deferred

Changes in our tax position could have a material impact on

taxes are unlikely to reverse, and that our deferred tax liabil-

our  earnings.  For  example,  a  1%  increase  to  our  statutory

ities for convertible securities may not reverse. As such, we

tax  rate  attributable  to  our  deferred  tax  liabilities  would

currently believe the economic benefit we realize from these

result in an increase of approximately $6.9 million in our

sources will be permanent.

tax expense in the period of such determination.

Most of our intangible assets are tax-deductible because we

generally structure our Affiliate investments as cash transac-

tions that are taxable to the sellers. We record deferred taxes

because  a  substantial  majority  of  our  intangible  assets  do

not  amortize  for  financial  statement  purposes,  but  do

amortize for tax purposes, thereby creating tax deductions

that  reduce  our  current  cash  taxes.  These  liabilities  will

reverse  only  in  the  event  of  a  sale  of  an  Affiliate  or  an

impairment  charge,  events  we  consider  unlikely  to  occur.

Under current accounting rules, we are required to accrue

the estimated cost of such a reversal as a deferred tax liability.

As of December 31, 2007, our estimate of the tax liability

associated  with  such  a  sale  or  impairment  charge  was

approximately $193.3 million.

Share-Based Compensation

We  have  share-based  compensation  plans  covering  senior

management,  employees  and  directors.  Prior  to  2006,  we

accounted for share-based compensation using the intrinsic

value  method  described  in  Accounting  Principles  Board

Opinion  No.  25,  “Accounting  for  Stock  Issued  to

Employees”  (“APB  25”)  and  related  Interpretations.

Accordingly, prior to 2006, no compensation expense was

recognized  from  share-based  compensation  plans  as  the

exercise  price  of  all  stock  options  granted  equaled  the

market price of the underlying stock on the grant date of

the award.

In 2006, we adopted the fair value recognition provisions of

During  2008,  our  convertible  securities  will  generate

FAS  123R  which  requires  a  company  to  recognize  share-

deferred  taxes  of  approximately  $8.5  million  because  our

based compensation, based on the fair value of the awards

interest  deductions  for  tax  purposes  are  greater  than  our

on the grant date. As a result, compensation is recognized

reported  interest  expense.  We  believe  that  some  or  all  of

in  the  financial  statements  for  all  share-based  payments

these deferred tax liabilities will be reclassified to equity as

granted after the date of adoption, and for all awards that

the securities are likely to convert to common stock when

are unvested after that date.

our stock price exceeds specified levels.

Under FAS 123R, we estimate the fair value of stock option

In addition, we also regularly assess our deferred tax assets,

awards using the Black-Scholes option pricing model. The

which  consist  primarily  of  state  tax  loss  carryforwards,  in

Black-Scholes  model  requires  us  to  make  assumptions

order  to  determine  the  need  for  valuation  allowances.  In

about the volatility of our common stock and the expected

our assessment we make assumptions about future taxable

life  of  our  stock  options  based  on  past  experience  and

income that may be generated to utilize these assets, which

anticipated  future  exercise  behavior.  As  an  example,  we

have limited lives. If we determine that we are unlikely to

considered  both  the  historical  volatility  of  our  common

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50

 
 
 
 
stock  and  the  implied  volatility  from  traded  options  in

Economic and Market Conditions

determining expected volatility.

Global Asset Management Industry

Our  options  typically  vest  and  become  fully  exercisable

The  asset  management  industry  has  been  a  key  driver  of

over three to five years of continued employment and do

growth in financial services over the last decade. According

not  include  performance-based  or  market-based  vesting

to the most recent available data, assets under management

conditions.  For  grants  that  are  subject  to  graded  vesting

across  all  distribution  channels  total  approximately  $53.4

over a service period, we recognize expense net of expected

trillion globally, of which $25.7 trillion is managed in the

forfeitures on a straight-line basis over the requisite service

United  States.  We  believe  long-term  prospects  for  overall

period for the entire award.

industry  growth  (which  have  compounded  at  an  annual

rate of 16% globally over the past four years) remain strong.

As of December 31, 2007, we had $55.3 million in remain-

We expect that this growth will be driven by market-related

ing unrecognized compensation cost related to stock option

increases in assets under management, broad demographic

grants,  which  will  be  recognized  over  a  weighted-average

trends  and  wealth  creation  related  to  growth  in  gross

period of approximately four years (assuming no forfeitures).

domestic  product,  and  will  be  experienced  in  varying

Revenue Recognition

degrees  across  each  of  the  principal  distribution  channels

for our Affiliates’ products.

The majority of our consolidated revenue represents advi-

sory  fees  (asset-based  and  performance-based).  Our

U.S. Asset Management Industry

Affiliates  recognize  asset-based  advisory  fees  quarterly  as

In  the  Mutual  Fund  distribution  channel,  according  to  a

they render services to their clients. In addition to generat-

2007 industry report, more than 88 million individuals in

ing asset-based fees, over 50 Affiliate products, representing

almost  51  million  households  in  the  United  States  are

approximately  $45  billion  of  assets  under  management,

invested in mutual funds. In 2007, net cash flows to equity

also  bill  on  the  basis  of  absolute  investment  performance

mutual  funds  totaled  over  $233  billion,  and  aggregate

(“performance fees”). These products, which are primarily

mutual fund assets totaled $11.6 trillion at the end of 2007.

in  the  Institutional  distribution  channel,  are  generally

We  anticipate  that  inflows  to  mutual  funds  will  continue

structured to have returns that are not directly correlated to

and that aggregate mutual fund assets, particularly those in

changes in broader equity indices and, if earned, the perform-

equity mutual funds, will continue to increase in line with

ance fee component is typically billed less frequently than the

long-term market growth.

asset-based  fee.  Our  Affiliates  recognize  performance  fees

when  they  are  earned  (i.e.  when  they  become  billable  to

Assets in the Institutional distribution channel in the United

customers) based on the contractual terms of agreements and

States  are  primarily  in  retirement  plans,  including  both

when collection is reasonably assured. Although performance

defined  benefit  and  defined  contribution  plans,  endow-

fees  inherently  depend  on  investment  results  and  will  vary

ments  and  foundations,  and  totaled  approximately  $14.4

from period to period, we anticipate performance fees to be a

trillion as of December 31, 2006. Although the majority of

recurring component of our revenue.

Institutional assets are in equities (estimated to be 60% in

51

2006), allocations to alternative investments have continued

part of their investment management services to non-U.S.

to  increase.  According  to  a  recent  study  of  institutional

clients.  In  the  future,  we  may  open  additional  offices,  or

investors, allocations of institutional assets to hedge funds (a

invest  in  other  investment  management  firms  which  con-

core  component  of  alternative  investments)  have  grown

duct  a  significant  part  of  their  operations  outside  of  the

from  2.5%  of  assets  in  2001  to  7.5%  in  2007,  and  are

United  States.  There  are  certain  risks  inherent  in  doing

expected  to  increase  to  8.9%  by  2009. We  anticipate  that

business internationally, such as changes in applicable laws

the  combination  of  an  aging  work  force  and  long-term

and  regulatory  requirements,  difficulties  in  staffing  and

market growth should contribute to the ongoing strength of

managing foreign operations, longer payment cycles, diffi-

this distribution channel.

culties in collecting investment advisory fees receivable, dif-

ferent  and  in  some  cases,  less  stringent,  regulatory  and

The  High  Net  Worth  distribution  channel  is  comprised

accounting regimes, political instability, fluctuations in cur-

broadly of high net worth and affluent individuals, family

rency  exchange  rates,  expatriation  controls,  expropriation

trusts and managed accounts. Within this channel, high net

risks and potential adverse tax consequences. There can be

worth families and individuals (those having at least $1 mil-

no assurance that one or more of such factors will not have

lion in investable assets) in the United States had aggregate

a material adverse effect on our affiliated investment man-

assets of $11.3 trillion at the end of 2006; industry experts

agement  firms  that  have  international  operations  or  on

expect  assets  in  this  segment  of  the  channel  to  grow  to

other  investment  management  firms  in  which  we  may

$15.8 trillion by the end of 2011. We believe that affluent

invest  in  the  future  and,  consequently,  on  our  business,

individuals  (those  having  between  $250,000  and  $1  mil-

financial condition and results of operations.

lion in investable assets) represent an important source of

asset  growth  within  the  High  Net  Worth  channel,  as  the

number of such individuals and the amount of investable

Inflation

assets  increases,  and  the  popularity  of  separately  managed

account  investment  products  for  affluent  individuals  con-

tinues to grow. According to a recent industry report, assets

in separately managed accounts totaled approximately $1.1

trillion at the end of 2007 (a nearly 20% increase over year

end 2006).

International Operations

We  do  not  believe  that  inflation  or  changing  prices  have

had  a  material  impact  on  our  results  of  operations.  See

“Management’s  Discussion  and  Analysis  of  Financial

Condition and Results of Operations—Market Risk.”

Quantitative and Qualitative Disclosures
About Market Risk

For quantitative and qualitative disclosures about how we

In  connection  with  our  international  initiatives,  we  have

are affected by market risk, see “Management’s Discussion

offices  in  Sydney,  Australia;  London,  England;  and

and  Analysis  of  Financial  Condition  and  Results  of

Toronto, Canada. In addition, we have international oper-

Operations—Market Risk.”

ations through Affiliates who provide some or a significant

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52

 
 
 
 
Selected Financial Data

Set forth below are selected financial data for the last five years. This data should be read in conjunction with, and is qual-

ified in its entirety by reference to, the Consolidated Financial Statements and accompanying notes included elsewhere in

this Annual Report.

(in thousands, except as indicated and per share data)

2003

2004

2005

2006

2007

For the Years Ended December 31,

Statement of Income Data
Revenue
Net Income
Earnings per share—diluted
Average shares outstanding—diluted

Other Financial Data
Assets under Management

(at period end, in millions)

Cash Flow from (used in):
Operating activities
Investing activities
Financing activities

EBITDA(1)
Cash Net Income(2)

Balance Sheet Data
Total assets(3)
Intangible assets(3)
Equity investments in Affiliates(3)
Affiliate investments in partnerships(4)
Minority interest in

Affiliate investments in partnerships(4)

Senior debt(5)
Senior convertible securities(6)
Mandatory convertible securities
Junior convertible trust preferred securities(7)
Other long-term obligations(8)
Stockholders’ equity(9)

$ 495,029
60,528
1.57
40,113

$ 659,997
77,147
2.02
39,645

$ 916,492
119,069
2.81
44,690

$ 1,170,353
151,277
3.74
45,159

$1,369,866
181,961
4.58
44,922

$

91,524

$ 129,802

$ 184,310

$ 241,140

$ 274,764

$ 116,515
(73,882)
153,697
147,215
104,944

$ 177,886
(478,266)
215,243
186,434
126,475

$ 204,078
(82,029)
(122,267)
267,463
186,103

$  301,003
(165,079)
(75,082)
342,118
222,454

$ 326,654
(580,755)
272,548
418,229
258,749

$ 1,519,205
1,116,036
—
2,303

$ 1,933,421
1,328,976
252,597
4,594

$ 2,321,636
1,576,941
301,476
5,079

$ 2,665,920
1,679,293
293,440
108,350

$ 3,395,705
1,726,989
842,490
134,657

—
—
423,340
230,000
—
108,851
614,769

—
126,750
423,958
300,000
—
155,565
707,692

—
241,250
424,232
300,000
—
202,772
817,381

104,096
365,500
413,358
300,000
300,000
229,793
499,222

127,397
519,500
378,083
300,000
800,000
290,538
469,202

(1) The definition of EBITDA is presented in Note 3 on page 35. Our use of EBITDA, including a reconciliation to cash flow from operations, is

discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

(2) Cash Net Income is defined as Net Income plus amortization and deferred taxes related to intangible assets plus Affiliate depreciation. We consider
Cash  Net  Income  an  important  measure  of  our  financial  performance,  as  we  believe  it  best  represents  operating  performance  before  non-cash
expenses  relating  to  the  acquisition  of  interests  in  our  affiliated  investment  management  firms.  Cash  Net  Income  is  not  a  measure  of  financial
performance under generally accepted accounting principles and, as calculated by us, may not be consistent with computations of Cash Net Income
by other companies. Our use of Cash Net Income, including a reconciliation of Cash Net Income to Net Income, is discussed in “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.”

(3) Total assets, Intangible assets and Equity investments in Affiliates have increased as we have made new or additional investments in affiliated invest-

ment management firms.

(4) In 2006, we implemented Emerging Issues Task Force Issue 04-05, “EITF 04-05” (see Note 1 to the Consolidated Financial Statements). In accordance
with EITF 04-05, we have consolidated client assets held in partnerships controlled by our Affiliates. These assets are reported as “Affiliate investments
in partnerships;” a majority of these assets are held by investors that are unrelated to us, and are reported as “Minority interest in Affiliate investments
in partnerships.”

(5) Senior debt consists of outstanding borrowings under our senior credit facility and, through November 2006, our senior notes due 2006.

(6) Senior convertible securities consists of our zero coupon senior convertible notes and our floating rate senior convertible securities.

(7) In 2006 and 2007, we completed private placements of junior convertible trust preferred securities of $300 million and $500 million, respectively.

(8) Other long-term obligations consist principally of income taxes and payables to related parties.

(9) During 2006 and 2007, we repurchased $537,777 and $426,479 of our common stock, respectively, including $206,394 pursuant to the prepaid

forward purchase contract described on page 43.

53

Management’s Report on Internal Control
Over Financial Reporting

Management  of  Affiliated  Managers  Group,  Inc.  (the

reasonable assurance regarding prevention or timely detec-

“Company”)  is  responsible  for  establishing  and  maintain-

tion of unauthorized acquisition, use or disposition of the

ing adequate internal control over financial reporting. The

Company’s assets that could have a material effect on our

Company’s  internal  control  over  financial  reporting

financial statements.

processes  are  designed  under  the  supervision  of  the

Company’s  chief  executive  and  chief  financial  officers  to

As  of  December  31,  2007,  management  conducted  an

provide  reasonable  assurance  regarding  the  reliability  of

assessment  of  the  effectiveness  of  the  Company’s  internal

financial  reporting  and  the  preparation  of  the  Company’s

control  over  financial  reporting  based  on  the  framework

financial  statements  for  external  reporting  purposes  in

established  in  Internal  Control—Integrated  Framework

accordance with accounting principles generally accepted in

issued  by  the  Committee  of  Sponsoring  Organizations  of

the United States.

the Treadway Commission (“COSO”). Based on this assess-

ment,  management  has  determined  that  the  Company’s

The  Company’s  internal  control  over  financial  reporting

internal control over financial reporting as of December 31,

includes policies and procedures that pertain to the mainte-

2007 was effective.

nance  of  records  that,  in  reasonable  detail,  accurately  and

fairly reflect transactions and dispositions of assets; provide

The  Company’s  internal  control  over  financial  reporting

reasonable assurances that transactions are recorded as nec-

as  of  December  31,  2007  has  been  audited  by

essary  to  permit  preparation  of  financial  statements  in

PricewaterhouseCoopers  LLP,  an  independent  registered

accordance with accounting principles generally accepted in

public accounting firm, as stated in their report appearing

the  United  States,  and  that  receipts  and  expenditures  are

on page 55, which expresses an unqualified opinion on the

being made only in accordance with authorizations of man-

effectiveness  of  the  firm’s  internal  control  over  financial

agement  and  the  directors  of  the  Company;  and  provide

reporting as of December 31, 2007.

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54

 
 
 
 
Report of Independent
Registered Public Accounting Firm

To the Board of Directors and Stockholders

and testing and evaluating the design and operating effective-

of Affiliated Managers Group, Inc.:

ness of internal control based on the assessed risk. Our audits

In  our  opinion,  the  accompanying  consolidated  balance

sheets  and  the  related  consolidated  statements  of  income,

changes  in  stockholders’  equity  and  cash  flows  present

fairly,

in  all  material  respects,  the  financial  position  of

Affiliated  Managers  Group,  Inc.  (the  “Company”)  at

December 31, 2007 and 2006, and the results of its opera-

tions  and  its  cash  flows  for  each  of  the  three  years  in  the

period  ended  December  31,  2007  in  conformity  with
accounting  principles  generally  accepted  in  the  United

States of America. Also in our opinion, the Company main-

tained,  in  all  material  respects,  effective  internal  control

over financial reporting as of December 31, 2007, based on

criteria  established 

in  Internal  Control—Integrated

Framework issued  by  the  Committee  of  Sponsoring

Organizations  of  the  Treadway  Commission  (“COSO”).

The Company’s management is responsible for these financial

statements,  for  maintaining  effective  internal  control  over

financial  reporting  and  for  its  assessment  of  the  effective-

ness of internal control over financial reporting, included in

Management’s Report on Internal Control Over Financial

Reporting  appearing  on  page  54  of  this  Annual  Report.

Our responsibility is to express opinions on these financial

statements,  and  on  the  Company’s  internal  control  over

financial reporting based on our integrated audits. We con-

ducted our audits in accordance with the standards of the

Public  Company  Accounting  Oversight  Board  (United

States). Those standards require that we plan and perform

the audits to obtain reasonable assurance about whether the

financial statements are free of material misstatement and

also included performing such other procedures as we con-

sidered necessary in the circumstances. We believe that our

audits provide a reasonable basis for our opinions.

A  company’s  internal  control  over  financial  reporting  is  a

process designed to provide reasonable assurance regarding

the reliability of financial reporting and the preparation of

financial  statements  for  external  purposes  in  accordance

with generally accepted accounting principles. A company’s

internal control over financial reporting includes those poli-

cies and procedures that (i) pertain to the maintenance of

records  that,  in  reasonable  detail,  accurately  and  fairly

reflect the transactions and dispositions of the assets of the

company;  (ii)  provide  reasonable  assurance  that  transac-

tions  are  recorded  as  necessary  to  permit  preparation  of

financial statements in accordance with generally accepted

accounting principles, and that receipts and expenditures of

the  company  are  being  made  only  in  accordance  with

authorizations of management and directors of the company;

and  (iii)  provide  reasonable  assurance  regarding  prevention

or  timely  detection  of  unauthorized  acquisition,  use,  or

disposition of  the  company’s  assets  that  could  have  a

material effect on the financial statements.

Because  of  its  inherent  limitations,  internal  control  over

financial  reporting  may  not  prevent  or  detect  misstate-

ments. Also, projections of any evaluation of effectiveness

to future periods are subject to the risk that controls may

become  inadequate  because  of  changes  in  conditions,  or

that  the  degree  of  compliance  with  the  policies  or  proce-

whether  effective  internal  control  over  financial  reporting

dures may deteriorate.

was maintained in all material respects. Our audits of the

financial  statements  included  examining,  on  a  test  basis,

evidence  supporting  the  amounts  and  disclosures  in  the

financial  statements,  assessing  the  accounting  principles
used  and  significant  estimates  made  by management,  and

Boston, Massachusetts

evaluating the overall financial statement presentation. Our

February 29, 2008

audit  of  internal  control  over  financial  reporting  included

obtaining an understanding of internal control over financial

reporting, assessing the risk that a material weakness exists,

55

Consolidated Statements of Income

(dollars in thousands, except per share data)

Revenue
Operating expenses:

Compensation and related expenses
Selling, general and administrative
Amortization of intangible assets
Depreciation and other amortization
Other operating expenses

Operating income
Non-operating (income) and expenses:

Investment and other income
Income from equity method investments
Investment income from Affiliate investments in partnerships
Interest expense

Income before minority interest and income taxes
Minority interest
Minority interest in Affiliate investments in partnerships

Income before income taxes
Income taxes—current
Income taxes—intangible-related deferred
Income taxes—other deferred

Net Income

Earnings per share—basic

Earnings per share—diluted

Average shares outstanding—basic
Average shares outstanding—diluted

Supplemental disclosure of total comprehensive income:
Net Income
Other comprehensive income (loss)

Total comprehensive income

The accompanying notes are an integral part of the Consolidated Financial Statements.

For the Years Ended December 31,

2005

2006

2007

$

916,492

$  1,170,353

$ 1,369,866

365,960
162,078
24,873
7,029
21,497

581,437

335,055

(8,871)
(26,970)
(445)
37,426

1,140

333,915
(144,263)
—

189,652
38,895
28,791
2,897

119,069

3.54

2.81

33,667,542
44,689,655

119,069
15,219

134,288

$

$

$

$

$

472,400
184,019
27,378
8,763
23,880

716,440

453,913

(16,943)
(38,318)
(3,400)
58,800

139

453,774
(212,523)
(3,364)

237,887
55,267
28,779
2,564

151,277

4.83

3.74

31,289,005
45,159,002

151,277
(2,090)

149,187

$

$

$

$

$

579,365
197,967
31,653
10,444
18,822

838,251

531,615

(17,133)
(58,197)
(38,877)
76,919

(37,288)

568,903
(241,987)
(38,089)

288,827
74,634
28,576
3,656

181,961

6.18

4.58

29,464,764
44,921,784

181,961
50,071

232,032

$

$

$

$

$

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56

 
 
 
 
Consolidated Balance Sheets

(in thousands)

Assets
Current assets:

Cash and cash equivalents
Investment advisory fees receivable
Affiliate investments in partnerships
Affiliate investments in marketable securities
Prepaid expenses and other current assets

Total current assets

Fixed assets, net
Equity investments in Affiliates
Acquired client relationships, net
Goodwill
Other assets

Total assets

Liabilities and Stockholders’ Equity
Current liabilities:

Accounts payable and accrued liabilities
Payables to related party

Total current liabilities

Senior debt
Senior convertible securities
Mandatory convertible securities
Junior convertible trust preferred securities
Deferred income taxes
Other long-term liabilities

Total liabilities

Commitments and contingencies (Note 15)
Minority interest
Minority interest in Affiliate investments in partnerships
Stockholders’ equity:
Common stock ($.01 par value; 153,000 shares authorized;

39,024 shares outstanding in 2006 and 2007)

Additional paid-in capital
Accumulated other comprehensive income
Retained earnings

Less: treasury stock, at cost (9,428 shares in 2006 and 10,865 shares in 2007)

Total stockholders’ equity

Total liabilities and stockholders’ equity

The accompanying notes are an integral part of the Consolidated Financial Statements.

December 31,

2006

2007

$ 201,729
201,385
108,350
15,516
27,299

554,279
63,984
293,440
502,066
1,177,227
74,924

$ 222,954
237,636
134,657
21,237
33,273

649,757
69,879
842,490
496,602
1,230,387
106,590

$ 2,665,920

$ 3,395,705

$ 246,727
41,086

$  246,400
69,952

287,813
365,500
413,358
300,000
300,000
218,584
11,209

316,352
519,500
378,083
300,000
800,000
257,022
33,516

$ 1,896,464
—
166,138
104,096

$ 2,604,473
—
194,633
127,397

390
609,369
14,666
654,465

390
662,454
64,737
836,426

1,278,890
(779,668)

1,564,007
(1,094,805)

499,222

469,202

$ 2,665,920

$ 3,395,705

57

Consolidated Statements of Changes in Stockholders’ Equity

(dollars in thousands)

December 31, 2004
Stock issued for option exercises
Tax benefit of option exercises
Issuance of Affiliate
equity interests

Settlement of forward equity

sale agreement

Conversion of zero coupon

convertible notes

Stock issued in connection
with Affiliate investment

Repurchase of stock
Net Income
Other comprehensive income

Common
Shares

Common
Stock

38,680,454
—
—

$ 387
—
—

—

—

—

343,204
—
—
—

—

—

—

3
—
—
—

Additional
Paid-In
Capital

$ 566,776
(34)
13,942

2,231

(14,378)

—

24,553
—
—
—

Accumulated
Other
Comprehensive
Income (Loss)

$ 1,537
—
—

Retained
Earnings

Treasury
Shares

Treasury
Shares
at Cost

$384,119

(5,394,730) $ (245,127)
39,269
—

— 1,152,947
—
—

—

—

—

—

—

—

—

—

6,533

—

—

347

—
—
—
15,219

—
—
— (1,189,700)
—
—

119,069
—

—
(90,532)
—
—

December 31, 2005

39,023,658

$ 390

$ 593,090

$16,756

$503,188

(5,424,950) $ (296,043)

Stock issued under option

and other incentive plans
Tax benefit of option exercises
Issuance of Affiliate
equity interests

Cost of call spread option

agreements

Conversions of zero coupon

convertible notes
Repurchase of stock
Net Income
Other comprehensive loss

—
—

—

—

—
—
—
—

—
—

—

—

—
—
—
—

(991)
28,529

2,031

(13,290)

—
—
—
—

—
—

—

—

— 1,263,873
—
—

42,694
—

—

—

—

—

—

—

—
—
—
(2,090)

—
215,350
— (5,482,047)
—
—

151,277
—

11,458
(537,777)
—
—

December 31, 2006

39,023,658

$ 390

$ 609,369

$14,666

$654,465

(9,427,774) $ (779,668)

Stock issued under option

and other incentive plans
Tax benefit of option exercises
Issuance of Affiliate
equity interests

Settlement of call spread
option agreements

Cost of call spread 

option agreements

Conversions of zero coupon

convertible notes
Repurchase of stock,
including prepaid
forward purchase contract

Net Income
Other comprehensive income

—
—

—

—

—

—

—
—
—

—
—

—

—

—

—

—
—
—

(23,443)
42,308

27,508

15,564

(6,800)

—

(2,052)
—
—

—
—

—

—

—

—

— 1,504,143
—
—

84,333
—

—

—

—

— (115,789)

(8,764)

—

—

—

—

667,826

35,773

—
—
50,071

— (3,493,605)
—
—

181,961
—

(426,479)
—
—

December 31, 2007

39,023,658

$ 390

$ 662,454

$64,737

$836,426 (10,865,199) $(1,094,805)

The accompanying notes are an integral part of the Consolidated Financial Statements.

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Consolidated Statements of Cash Flows

(in thousands)

Cash flow from operating activities:

Net Income

Adjustments to reconcile Net Income to net cash flow from operating activities:

Amortization of intangible assets
Amortization of issuance costs
Depreciation and other amortization
Deferred income tax provision
Accretion of interest
Income from equity method investments, net of amortization
Distributions received from equity method investments
Tax benefit from exercise of stock options
Stock option expense
Other adjustments

Changes in assets and liabilities:

Increase in investment advisory fees receivable
Decrease in Affiliate investments in partnerships
(Increase) decrease in prepaids and other current assets
(Increase) decrease in other assets
Increase in accounts payable, accrued liabilities and other long-term liabilities
Increase in minority interest

Cash flow from operating activities

Cash flow used in investing activities:

Costs of investments in Affiliates, net of cash acquired
Purchase of fixed assets
Purchase of investment securities
Sale of investment securities

Cash flow used in investing activities
Cash flow from (used in) financing activities:

Borrowings of senior bank debt
Repayments of senior bank debt
Issuance of junior convertible trust preferred securities
Repayment of debt assumed in new investment
Repayment of senior debt 
Repurchase of senior debt 
Issuance of common stock
Repurchase of common stock, including prepaid forward purchase contract
Issuance costs
Settlement of forward equity sale agreement
Excess tax benefit from exercise of stock options
Cost of call spread option agreements
Repayment of notes payable and other liabilities
Redemptions of Minority interest—Affiliate investments in partnerships

Cash flow from (used in) financing activities

Effect of foreign exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosure of cash flow information: 

Interest paid
Income taxes paid

Supplemental disclosure of non-cash financing activities: 

Stock issued for zero coupon senior convertible note conversions
Payables recorded for Affiliate equity purchases
Stock issued in new investment
Debt assumed in new investment

The accompanying notes are an integral part of the Consolidated Financial Statements.

For the Years Ended December 31,
2006

2005

2007

$ 119,069

$ 151,277

$ 181,961

24,873
3,018
7,029
31,688
1,896
(26,971)
16,565
13,942
—
(2,231)

(53,846)
—
(8,258)
(126)
32,217
45,213
204,078

(85,175)
(14,523)
(6,393)
24,062
(82,029)

224,500
(100,000)
—
(150,811)
—
(10,000)
28,892
(82,317)
(2,660)
(14,008)
—
—
(15,863)
—
(122,267)
364
146
140,277
$ 140,423

27,378
2,862
8,763
31,343
2,360
(38,318)
46,033
5,482
1,654
8,528

(52,281)
7,707
150
3,159
65,814
29,092
301,003

(123,262)
(21,510)
(29,522)
9,215
(165,079)

602,000
(412,000)
300,000
—
(65,750)
—
52,765
(536,478)
(9,982)
—
23,047
(13,290)
(7,687)
(7,707)
(75,082)
464
61,306
140,423
$ 201,729

31,653
3,250
10,444
32,232
2,772
(58,197)
53,612
5,780
9,039
5,979

(35,963)
12,766
(4,722)
(3,178)
21,035
58,191
326,654

(556,683)
(16,821)
(13,648)
6,397
(580,755)

727,000
(573,000)
500,000
—
—
—
53,324
(435,997)
(19,999)
—
36,528
—
(2,542)
(12,766)
272,548
2,778
21,225
201,729
$ 222,954

$ 39,381
29,290

$ 59,526
29,003

$ 77,735
30,243

347
4,567
24,556
150,811

11,458
36,736
—
—

35,773
18,308
—
—

59

Notes to Consolidated Financial Statements

1

Business and Summary of
Significant Accounting Policies 

(a) Organization and Nature of Operations

Affiliated  Managers  Group,  Inc.  (“AMG”  or 

the

“Company”) is an asset management company with equity

investments  in  a  diverse  group  of  boutique  investment

management firms (“Affiliates”). AMG’s Affiliates currently

provide investment management services globally to mutual

funds, institutional clients and high net worth individuals.

Fees for services are largely asset-based and, as a result, the

Company’s revenue may fluctuate based on the performance

of financial markets.

Affiliates are either organized as limited partnerships, limited

liability partnerships, limited liability companies, or corpora-

tions. AMG generally has contractual arrangements with its

Affiliates  whereby  a  percentage  of  revenue  is  customarily

allocable  to  fund  Affiliate  operating  expenses,  including

compensation  (the  “Operating  Allocation”),  while  the

remaining portion of revenue (the “Owners’ Allocation”) is

allocable to AMG and the other partners or members, gener-

ally  with  a  priority  to  AMG.  In  certain  other  cases,  the

Affiliate is not subject to a revenue sharing arrangement, but

instead  operates  on  a  profit-based  model.  In  these  cases,

AMG  participates  fully  in  any  increase  or  decrease  in  the

revenue or expenses of such firms. In situations where AMG

holds a minority equity interest, the revenue sharing arrange-

ment generally allocates to AMG a percentage of the Affiliate’s

revenue.  The  remaining  revenue  is  used  to  pay  operating

expenses and profit distributions to the other owners.

The  financial  statements  are  prepared  in  accordance  with

accounting  principles  generally  accepted  in  the  United

States (“U.S. GAAP”). All dollar amounts, except per share

data in the text and tables herein, are stated in thousands

unless  otherwise  indicated.  Certain  reclassifications  have
been made to prior years’ financial statements to conform

to the current year’s presentation.

(b) Principles of Consolidation

The  Company  evaluates  the  risk,  rewards,  and  significant

terms of each of its Affiliate and other investments to determine

the  appropriate  method  of  accounting.  Majority-owned  or

otherwise controlled investments are consolidated. In many

of its Affiliate investments, AMG is, directly or indirectly, the

sole general partner (in the case of Affiliates which are limit-

ed partnerships), managing partner (in the case of Affiliates

which  are  limited  liability  partnerships),  sole  manager

member (in the case of Affiliates which are limited liability

companies) or principal shareholder (in the case of Affiliates

which are corporations). As a result, the Company generally

consolidates  its  Affiliate  investments.  Investments  that  are

determined  to  be  Variable  Interest  Entities  as  defined

by  FASB  Interpretation  No.  46  (revised),  “Consolidation

of  Variable  Interest  Entities”  (“FIN46R”),  are  consolidated

if AMG or a consolidated Affiliate is the primary beneficiary

of the investment.

For  Affiliate  operations  consolidated  into  these  financial

statements, the portion of the income allocated to owners

other  than  AMG  is  included  in  Minority  interest  in  the

Consolidated Statements of Income. As Affiliates are gener-

ally  structured  as  pass-through  entities  for  tax  purposes,

minority interest has been presented before income taxes in

the Consolidated Statements of Income. Minority interest

on  the  Consolidated  Balance  Sheets  includes  capital  and

undistributed income owned by the managers of the con-

solidated Affiliates. All material intercompany balances and

transactions have been eliminated.

AMG  applies  the  equity  method  of  accounting  to  invest-

ments where AMG or an Affiliate does not hold a majority

equity interest but has the ability to exercise significant influ-

ence  (generally  at  least  a  20%  interest  or  a  general  partner

interest)  over  operating  and  financial  matters.  AMG  or  an

Affiliate also applies the equity method when their minority

shareholders or partners have certain rights to remove their

ability to control the entity or rights to participate in substan-

tive  operating  decisions  (e.g.  approval  of  annual  operating

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budgets, major financings, selection of senior management,

held  by  investors  that  are  unrelated  to  the  Company,  and

etc.).  For  equity  method  investments,  AMG’s  or  the

reported  as  “Minority  interest  in  Affiliate  investments  in

Affiliate’s  portion  of  income  before  taxes  is  included  in

partnerships.” Income from these partnerships is presented

Income from equity method investments. Other investments

as  “Investment  income  from  Affiliate  investments  in

in which AMG or an Affiliate owns less than a 20% interest

partnerships”  in  the  Consolidated  Statements  of  Income.

and does not exercise significant influence are accounted for

The  portion  of  this  income  or  loss  that  is  attributable  to

under the cost method. Under the cost method, income is

investors that are unrelated to the Company is reported as a

recognized as dividends when, and if, declared.

“Minority interest in Affiliate investments in partnerships.”

Effective  January  1,  2006,  the  Company  implemented

Emerging  Issues  Task  Force  Issue  04-05,  “Determining

Whether  a  General  Partner,  or  the  General  Partners  as  a

Group,  Controls  a  Limited  Partnership  or  Similar  Entity

When  the  Limited  Partners  Have  Certain  Rights”  (“EITF

04-05”). Under EITF 04-05, the Company or an Affiliate

consolidates any partnership that it controls, including those

interests in the partnerships in which the Company does not

have  ownership  rights.  A  general  partner  is  presumed  to

control a partnership unless the limited partners have certain

rights  to  remove  the  general  partner  or  other  substantive

rights to participate in partnership operations. Partnerships

that are not controlled by the Company or an Affiliate are

(e) Affiliate Investments in Marketable Securities

Affiliate investments in marketable securities are classified

as  either  trading  or  available-for-sale  and  carried  at  fair

value.  Unrealized  holding  gains  or  losses  on  investments

classified  as  available-for-sale  are  reported  net  of  deferred

tax as a separate component of accumulated other compre-

hensive  income  in  stockholders’  equity  until  realized.  If  a

decline in the fair value of these investments is determined

to  be  other  than  temporary,  the  carrying  amount  of  the

asset  is  reduced  to  its  fair  value,  and  the  difference  is

charged to income in the period incurred.

accounted for using the equity method of accounting.

(f) Fixed Assets

The effect of any changes in the Company’s equity interests

in its Affiliates resulting from the issuance of an Affiliate’s

equity by the Company or one of its Affiliates is included

as a component of stockholders’ equity, net of the related

income tax effect in the period of the change.

(c) Cash and Cash Equivalents

The  Company  considers  all  highly  liquid  investments,

including money market mutual funds, with original matu-

rities of three months or less to be cash equivalents. Cash

equivalents  are  stated  at  cost,  which  approximates  market

Fixed assets are recorded at cost and depreciated using the

straight-line method over their estimated useful lives. The

estimated useful lives of office equipment and furniture and

fixtures range from three to ten years. Computer software

developed  or  obtained  for  internal  use  is  amortized  using

the straight-line method over the estimated useful life of the

software, generally three years or less. Leasehold improve-

ments are amortized over the shorter of their estimated use-

ful lives or the term of the lease, and the building is amor-

tized over 39 years. The costs of improvements that extend

the  life  of  a  fixed  asset  are  capitalized,  while  the  cost  of

repairs and maintenance are expensed as incurred. Land is

value due to the short-term maturity of these investments.

not depreciated.

(d) Affiliate Investments in Partnerships

(g) Leases

Assets of consolidated partnerships are reported as “Affiliate

The Company and its Affiliates currently lease office space

investments in partnerships.” A majority of these assets are

and equipment under various leasing arrangements. As these

61

leases expire, it can be expected that in the normal course of

a decline in value below the book value of the investment is

business they will be renewed or replaced. All leases and sub-

other than temporary, then a charge would be recognized in

leases  are  accounted  for  under  Statement  of  Financial

the Consolidated Statements of Income.

Accounting  Standard  (“FAS”)  No.  13,  “Accounting  for

Leases.” These leases are classified as either capital leases or

operating leases, as appropriate. Most lease agreements clas-

sified as operating leases contain renewal options, rent esca-

lation  clauses  or  other  inducements  provided  by  the  land-

lord.  Rent  expense  is  accrued  to  recognize  lease  escalation

provisions  and  inducements  provided  by  the  landlord,  if

any, on a straight-line basis over the lease term.

(h) Equity Investments in Affiliates

(i) Acquired Client Relationships and Goodwill

The  purchase  price  for  the  acquisition  of  interests  in

Affiliates  is  allocated  based  on  the  fair  value  of  net  assets

acquired, primarily acquired client relationships. In deter-

mining  the  allocation  of  the  purchase  price  to  acquired

client relationships, the Company analyzes the net present
value of each acquired Affiliate’s existing client relationships

based  on  a  number  of  factors  including:  the  Affiliate’s

historical and potential future operating performance; the

For equity method investments, the Company’s portion of

Affiliate’s  historical  and  potential  future  rates  of  attrition

income  before  taxes  is  included  in  Income  from  equity

among  existing  clients;  the  stability  and  longevity  of

method investments. The Company’s share of income taxes

existing client relationships; the Affiliate’s recent, as well as

incurred directly by Affiliates accounted for under the equi-

long-term,  investment  performance;  the  characteristics  of

ty  method  are  recorded  within  Income  taxes—current  in

the firm’s products and investment styles; the stability and

the Consolidated Statements of Income because these taxes

depth of the Affiliate’s management team and the Affiliate’s

generally  represent  the  Company’s  share  of  the  taxes

history and perceived franchise or brand value.

incurred by the Affiliate. Deferred income taxes incurred as

a  direct  result  of  the  Company’s  investment  in  Affiliates

The  Company  has  determined  that  certain  of  its  mutual

accounted for under the equity method have been included

fund  acquired  client  relationships  meet  the  indefinite  life

in  Income  taxes—intangible-related  deferred  in  the

criteria  outlined  in  FAS  No.  142,  “Goodwill  and  Other

Consolidated  Statements  of  Income.  The  associated

Intangible  Assets”  (“FAS  142”),  because  the  Company

deferred tax liabilities have been classified as a component

expects  both  the  renewal  of  these  contracts  and  the  cash

of deferred income taxes in the Consolidated Balance Sheet.

flows  generated  by  these  assets  to  continue  indefinitely.

Accordingly, the Company does not amortize these intangi-

As is consistent with the equity method of accounting, for

ble assets, but instead reviews these assets at least annually

one of its equity method Affiliates based outside the United

for  impairment.  Each  reporting  period,  the  Company

States, the Company has elected to record financial results

assesses  whether  events  or  circumstances  have  occurred

one quarter in arrears to allow for the receipt of financial

which indicate that the indefinite life criteria are no longer

information. The Company converts the financial informa-

met.  If  the  indefinite  life  criteria  are  no  longer  met,  the

tion of foreign investments to U.S. GAAP.

Company assesses whether the carrying value of the assets

The  Company  periodically  evaluates  its  equity  method
investments  for  impairment.  In  such  impairment  evalua-

exceeds  its  fair  value,  and  an  impairment  loss  would  be

recorded in an amount equal to any such excess.

tions, the Company assesses if the value of the investment

As  of  December  31,  2007,  the  cost  assigned  to  all  other

has declined below its book value for a period considered to

acquired  client  relationships  was  being  amortized  over  a

be other than temporary. If the Company determines that

weighted  average  life  of  approximately  12  years.  The

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62

 
 
 
 
expected  useful  lives  of  acquired  client  relationships  are

Affiliates  for  managing  the  assets  of  clients.  Asset-based

analyzed each period and determined based on an analysis

advisory  fees  are  recognized  monthly  as  services  are  ren-

of  the  historical  and  projected  attrition  rates  of  each

dered and are based upon a percentage of the market value

Affiliate’s existing clients, and other factors that may influ-

of client assets managed. Any fees collected in advance are

ence  the  expected  future  economic  benefit  the  Company

deferred and recognized as income over the period earned.

will derive from the relationships. The Company tests for

Performance-based advisory fees are generally assessed as a

the  possible  impairment  of  definite-lived  intangible  assets

percentage  of  the  investment  performance  realized  on  a

annually or more frequently whenever events or changes in

client’s  account,  generally  over  an  annual  period.

circumstances indicate that the carrying amount of the asset

Performance-based advisory fees are recognized when they

is  not  recoverable.  If  such  indicators  exist,  the  Company

are  earned  (i.e.  when  they  become  billable  to  customers)

compares the undiscounted cash flows related to the asset to

based  on  the  contractual  terms  of  agreements  and  when

the  carrying  value  of  the  asset.  If  the  carrying  value  is

collection  is  reasonably  assured.  Also  included  in  revenue

greater  than  the  undiscounted  cash  flow  amount,  an

are  commissions  earned  by  broker  dealers,  recorded  on  a

impairment  charge  is  recorded  in  the  Consolidated

trade date basis, and other service fees recorded as earned.

Statements of Income for amounts necessary to reduce the

carrying value of the asset to fair value.

(k) Issuance Costs

The excess of purchase price for the acquisition of interests

in  Affiliates  over  the  fair  value  of  net  assets  acquired,

including acquired client relationships, is reported as good-

will  within  the  operating  segments  in  which  the  Affiliate

operates. Goodwill is not amortized, but is instead reviewed

for  impairment.  The  Company  assesses  goodwill  for

impairment at least annually, or more frequently whenever

events or circumstances occur indicating that the recorded

goodwill may be impaired. Fair value is determined for each

operating segment primarily based on price-earnings multi-

ples.  If  the  carrying  amount  of  goodwill  exceeds  the  fair

value, an impairment loss would be recorded in an amount

equal to that excess.

As further described in Note 16, the Company periodically

purchases  additional  equity  interests  in  Affiliates  from

minority interest owners. Resulting payments made to such

owners  are  generally  considered  purchase  price  for  these

acquired interests.

(j) Revenue Recognition

Issuance costs incurred in securing credit facility financing

are amortized over the remaining term of the credit facility.

Costs incurred to issue the zero coupon senior convertible

securities, the floating rate senior convertible securities and

junior  convertible  trust  preferred  securities  are  amortized

over the earlier of the period to the first investor put date or

the stated term of the security. Costs incurred to issue the

Company’s  mandatory  convertible  securities  are  allocated

between the senior notes and the purchase contracts based

upon the relative cost to issue each instrument separately.

Costs allocated to the senior notes are recognized as inter-

est expense over the period of the forward equity purchase

contract  component  of  such  securities.  Costs  allocated  to

the  prepaid  forward  purchase  contract  and  call  spread

option  agreements  are  charged  directly  to  stockholders’

equity and not amortized.

(l) Derivative Financial Instruments

The Company is exposed to interest rate risk inherent in its

variable rate debt obligations. The Company’s risk manage-
ment strategy may utilize financial instruments, specifically

interest  rate  swap  contracts,  to  hedge  certain  interest  rate

The Company’s consolidated revenue primarily represents

exposures.  For  example,  the  Company  may  agree  with  a

advisory  fees  billed  monthly,  quarterly  and  annually  by

counter  party  (typically  a  major  commercial  bank)  to

63

exchange the difference between fixed-rate and floating-rate

“more-likely-than-not” threshold, the amount recognized in

interest  amounts  calculated  by  reference  to  an  agreed

the financial statements is the benefit expected to be realized

notional principal amount. In entering into these contracts,

upon  settlement  with  the  tax  authority.  For  tax  positions

the  Company  intends  to  offset  cash  flow  gains  and  losses

not  meeting  the  threshold,  no  financial  statement  benefit

that  occur  on  its  existing  debt  obligations  with  cash  flow

is recognized.

gains and losses on the contracts hedging these obligations.

The Company records all derivatives on the balance sheet

at  fair  value.  If  the  Company’s  derivatives  qualify  as  cash

flow hedges, the effective portion of the unrealized gain or

loss  is  recorded  in  accumulated  other  comprehensive

income as a separate component of stockholders’ equity and

reclassified  into  earnings  when  periodic  settlement  of

variable  rate  liabilities  are  recorded  in  earnings.  Hedge

effectiveness is generally measured by comparing the present

value of the cumulative change in the expected future variable

cash flows of the hedged contract with the present value of

the cumulative change in the expected future variable cash

flows  of  the  hedged  item.  To  the  extent  that  the  critical

terms of the hedged item and the derivative are not identical,

hedge  ineffectiveness  would  be  reported  in  earnings  as

interest expense. Hedge ineffectiveness was not material in

2005, 2006 or 2007.

(m) Income Taxes

On January 1, 2007, the Company adopted the provisions

The Company accounts for income taxes using the liability

method.  Under  this  method,  deferred  taxes  are  recognized

for the expected future tax consequences of temporary differ-

ences between the book carrying amounts and tax bases of

the  Company’s  assets  and  liabilities.  Historically,  deferred

taxes have been comprised primarily of deferred tax liabilities

attributable to intangible assets and convertible securities and

deferred tax assets from state credits and loss carryforwards.

In measuring the amount of deferred taxes each period, the

Company  must  project  the  impact  on  its  future  tax

payments  of  any  reversal  of  deferred  tax  liabilities  (which

would increase the Company’s tax payments), and any use of

its state credits and carryforwards (which would decrease its

tax  payments).  In  forming  these  estimates,  the  Company

makes  assumptions  about  future  federal,  state  and  foreign

income  tax  rates  and  the  apportionment  of  future  taxable

income to jurisdictions in which the Company has opera-

tions. An increase or decrease in federal or state income tax

rates  could  have  a  material  impact  on  the  Company’s

deferred income tax liabilities and assets and would result in

of  Financial  Interpretation  No.  48,  “Accounting  for

a current income tax charge or benefit.

Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clarifies

the  accounting  for  uncertain  tax  positions  recognized  in

financial  statements  in  accordance  with  FASB  Statement

No. 109 “Accounting for Income Taxes” (“FAS 109”). FIN

48  prescribes  a  recognition  threshold  and  measurement

criteria for evaluating tax positions. As allowed by FIN 48,

the Company recognizes interest and other charges relating

to unrecognized tax benefits as additional tax expense.

In  the  case  of  the  Company’s  deferred  tax  assets,  the

Company  regularly  assesses  the  need  for  valuation

allowances, which would reduce these assets to their recov-

erable amounts. In forming these estimates, the Company

makes  assumptions  of  future  taxable  income  that  may  be

generated to utilize these assets, which have limited lives. If

the Company determines that these assets will be realized,

the  Company  records  an  adjustment  to  the  valuation

As required by FIN 48, the Company recognizes the finan-

allowance, which would decrease tax expense in the period

cial statement benefit of an uncertain tax position only after

such  determination  was  made.  Likewise,  should  the

considering the probability that a tax authority would sustain

Company  determine  that  it  would  be  unable  to  realize

the position in an examination. For tax positions meeting a

additional amounts of deferred tax assets, an adjustment to

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64

 
 
 
 
the valuation allowance would be charged to tax expense in

expense  for  all  options  granted  subsequent  to  January  1,

the  period  such  determination  was  made.  For  example,  if

2006. Compensation expense recognized under FAS 123R,

the Company was to make an investment in a new Affiliate

net  of  tax,  was  $1,042  and  $5,694  for  the  years  ended

located in a state where it has operating loss carryforwards,

December 31, 2006 and 2007, respectively. This additional

the projected taxable income from the new Affiliate could

compensation expense decreased basic and diluted earnings

be offset by these operating loss carryforwards, justifying a

per  share  by  $0.03  and  $0.02,  respectively,  for  the  year

reduction to the valuation allowance.

ended December 31, 2006, and $0.19 and $0.13, respec-

(n) Foreign Currency Translation

The assets and liabilities of Affiliates that are not based in
the  United  States  are  translated  into  U.S.  dollars  using

exchange  rates  in  effect  as  of  the  balance  sheet  date. The

revenue and expenses of these Affiliates are translated into

U.S.  dollars  using  average  exchange  rates  for  the  relevant

period. Because of the permanent nature of the Company’s

tively, for the year ended December 31, 2007.

The following table presents Net Income and earnings per

share as if the Company had applied the fair value recogni-

tion provisions of FAS 123 to stock-based employee com-

pensation for the year ended December 31, 2005.

investments,  net  translation  exchange  gains  and  losses  are

Net Income—as reported

excluded from Net Income but are recorded in other com-

prehensive income. Foreign currency transaction gains and

losses are reflected in Investment and other income.

(o) Share-Based Compensation Plans

Effective  January  1,  2006,  the  Company  adopted  the  fair

value recognition provisions of FAS No. 123 (revised 2004),

“Share-Based  Payment”  (“FAS  123R”).  FAS  123R  revises

Add: Total stock-based employee 
compensation expense included 
in reported Net Income, net of tax

Less: Stock-based compensation

expense determined under fair 
value method net of tax

Net Income—FAS 123 pro forma

Earnings per share—
basic—as reported

Earnings per share—

SFAS No. 123, “Accounting for Stock-Based Compensation”

basic—FAS 123 pro forma

(“FAS  123”)  and  supersedes  Accounting  Principles  Board

Earnings per share—

(“APB”)  Opinion  No.  25,  “Accounting  for  Stock  Issued  to

Employees”  (“APB  No.  25”).  FAS  123R  requires  as  an

expense  the  cost  of  all  share-based  payments  to  employees,

including grants of employee stock options, to be recognized

diluted—as reported

Earnings per share—

diluted—FAS 123 pro forma

Year Ended
December 31, 2005

$ 119,069

—

709

$ 118,360

$

3.54

3.52

2.81

2.80

in the financial statements based on their fair values over the

FAS  123R  also  requires  the  Company  to  report  any  tax

requisite  service  period.  In  addition,  FAS  123R  requires

benefits realized upon the exercise of stock options that are in

unrecognized costs related to options vesting after the date of

excess of the expense recognized for reporting purposes as a

initial adoption to be recognized as an expense in the finan-

financing activity in the company’s Consolidated Statements

cial statements over the remaining requisite service period.

of Cash Flows. Prior to the adoption of FAS 123R, these tax

benefits  were  presented  as  operating  cash  flows  in  the

The  Company  adopted  FAS  123R  using  the  modified

Consolidated  Statements  of  Cash  Flows.  If  the  tax  benefit

prospective  transition  method.  Under  this  method,  com-

realized  is  less  than  the  expense,  the  tax  shortfall  is  recog-

pensation expense includes: (i) an expense for all unvested

nized  in  stockholders’  equity.  To  the  extent  the  expense

options  outstanding  on  January  1,  2006,  and  (ii)  an

exceeds available windfall tax benefits, it is recognized in the

65

Consolidated Statements of Income. Under FAS 123R, the

In December 2007, the FASB issued Statement of Financial

Company was permitted to calculate its cumulative windfall

Accounting  Standards  No.  141  (revised  2007),  “Business

tax  benefits  for  the  purposes  of  accounting  for  future  tax

Combinations” (“FAS 141R”). FAS 141R will change the

shortfalls.  The  Company  elected  to  apply  the  long-form

accounting  for  business  combinations  in  a  number  of

method for determining the pool of windfall tax benefits.

respects,  including  the  way  entities  account  for  business

(p) Use of Estimates

The preparation of financial statements in conformity with

U.S.  GAAP  requires  management  to  make  estimates  and

assumptions  that  affect  the  reported  amounts  included  in
the financial statements and disclosure of contingent assets

and liabilities at the date of the financial statements. Actual

results could differ from those estimates.

(q) Recent Accounting Developments

In September 2006, the FASB issued Statement of Financial

Accounting Standards No. 157, “Fair Value Measurements”

(“FAS 157”). FAS 157 establishes a framework for measuring

fair value applicable to other accounting standards that use

fair value measurements. In February 2008, the FASB issued

FASB  Staff  Position  No.  157-2,  “Effective  Date  of  FASB

Statement No. 157,” which deferred the effective date of FAS

157 for one year for nonfinancial assets and liabilities, except

those  that  are  recognized  or  disclosed  at  fair  value  in  the

financial statements on a recurring basis. The Company will

be subject to certain of the provisions of FAS 157 in the first

quarter  of  2008.  This  standard  is  not  expected  to  have  a

material  impact  on  the  Company’s  consolidated  financial

statements, but will require certain additional disclosures.

combinations  achieved  in  stages  by  requiring  the  identifi-

able  assets  and  liabilities  to  be  measured  at  their  full  fair 

values on the acquisition date. In addition, FAS 141R will

change the treatment of contingent consideration, contin-

gencies,  acquisition  costs,  and  restructuring  costs.  FAS

141R will be applied prospectively to any business combi-

nation completed after December 31, 2008. The impact of

this standard will depend upon the nature, terms and size

of business combinations completed after the effective date.

In December 2007, the FASB issued Statement of Financial

Accounting Standards No. 160, “Noncontrolling Interests

in  Consolidated  Financial  Statements,  an  amendment  of

ARB  No.  51”  (“FAS  160”).  FAS  160  will  change  the

accounting  and  reporting  for  minority  or  noncontrolling

interests. Upon adoption, these interests will be classified as

a  separate  component  within  stockholders’  equity  and

transactions  between  controlling  interest  and  minority

interest holders will be accounted for within stockholders’

equity. The Company will adopt FAS 160 in the first quar-

ter of 2009 and is currently evaluating the impact that this

standard will have on the consolidated financial statements.

2

Concentrations of Credit Risk 

In February 2007, the FASB issued Statement of Financial

Financial instruments that potentially subject the Company

Accounting Standards No. 159, “The Fair Value Option for

to significant concentrations of credit risk consist principally

Financial  Assets  and  Financial  Liabilities—Including  an

of cash investments. The Company maintains cash and cash

amendment  of  FASB  Statement  No.  115”  (“FAS  159”).

equivalents,  investments  and,  at  times,  certain  financial

FAS  159  permits  companies  to  measure  many  financial

instruments with various financial institutions. These finan-

instruments  and  certain  other  items  at  fair  value.  The
Company will adopt FAS 159 in the first quarter of 2008.

cial institutions are typically located in cities in which AMG
and  its  Affiliates  operate.  For  AMG  and  certain  Affiliates,

This standard is not expected to have a material impact on

cash  deposits  at  a  financial  institution  may  exceed  Federal

the Company’s consolidated financial statements.

Deposit Insurance Corporation insurance limits.

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3

Affiliate Investments in Partnerships

5

Fixed Assets and Lease Commitments

Purchases  and  sales  of  investments  (principally  equity

Fixed assets consisted of the following:

securities) and gross client subscriptions and redemptions

relating  to  Affiliate  investments  in  partnerships  were

as follows:

Building and leasehold improvements

$ 44,495

$ 49,767

At December 31,

2006

2007

Purchase of investments

$158,311

$ 285,001

Land and improvements

At December 31,

Office equipment

2006

2007

Furniture and fixtures

Computer software

Fixed assets, at cost

Accumulated depreciation 

and amortization

Fixed assets, net

22,786

13,345

13,403

8,965

30,457

14,741

15,203

9,314

102,994

119,482

(39,010)

(49,603)

$ 63,984

$ 69,879

Sale of investments

Gross subscriptions

Gross redemptions

167,246

295,799

498

8,205

4,523

17,289

Management fees earned by the Company on partnership

assets  were  $1,148  and  $1,309  for  the  years  ended

December 31, 2006 and 2007, respectively.

As  of  December  31,  2006  and  December  31,  2007,  the

Company’s  investments  in  partnerships  that  are  not

controlled  by  its  Affiliates  were  $21,449  and  $19,799,

respectively. These assets are reported within “Other assets”

in the Consolidated Balance Sheets. The income or loss relat-

ed to these investments is classified within “Investment and

other income” in the Consolidated Statements of Income.

4

Affiliate Investments in Marketable Securities

The  cost  of  Affiliate  investments  in  marketable  securities,

gross unrealized gains and losses were as follows:

Cost of Affiliate investments
in marketable securities

Gross unrealized gains

Gross unrealized losses

At December 31,

2006

2007

$14,342

$20,272

1,379

205

1,866

901

The Company and its Affiliates lease office space and com-

puter  equipment  for  their  operations.  At  December  31,

2007, the Company’s aggregate future minimum payments

for  operating  leases  having  initial  or  noncancelable  lease

terms greater than one year are payable as follows:

Year Ending December 31,

Required
Minimum Payments

2008

2009

2010

2011

2012

Thereafter

$ 20,194

19,965

17,125

14,265

11,386

27,552

Consolidated  rent  expense  for  2005,  2006  and  2007  was

$18,151, $19,574 and $20,283, respectively.

67

6

Accounts Payable and Accrued Liabilities

Accounts  payable  and  accrued  liabilities  consisted  of

the following:

Accrued compensation

Accrued income taxes

Accrued interest

Accrued professional services

Accrued subadvisory fees

Accounts payable

Accrued rent

Deferred revenue

Accrued share repurchases

Contract adjustment payments

Other

At December 31,

2006

2007

$ 156,674

$ 169,382

29,550

6,402

7,287

5,218

9,359

2,635

953

9,518

6,025

13,106

22,960

12,542

10,978

5,541

4,971

3,029

1,487

—

1,263

14,247

$ 246,727

$ 246,400

irrevocable.  In  addition,  the  Company  has  established  a

Deferred  Compensation  Plan  that  provides  officers  and

directors  of  the  Company  the  opportunity  to  voluntarily

defer  base  salary,  bonus  payments  and  director  fees,  as

applicable,  on  a  pre-tax  basis,  and  invest  such  deferred

amounts in one or more specified measurement funds. While

the  Company  has  no  obligation  to  do  so,  the  Deferred

Compensation  Plan  also  provides  the  Company  the

opportunity  to  make  discretionary  contributions;  in  the

event  any  such  contributions  are  made,  contributed

amounts will be subject to vesting and forfeiture provisions.

Consolidated  expenses  related  to  the  Company’s  benefit

plans in 2005, 2006 and 2007 were $20,864, $10,336 and

$10,374, respectively.

8

Senior Debt

Senior debt is comprised of:

7

Benefit Plans

The Company has three defined contribution plans consist-

At December 31,

2006

2007

ing  of  a  qualified  employee  profit-sharing  plan  covering

Senior credit facility

$ 365,500

$ 519,500

substantially all of its full-time employees and several of its

Affiliates,  and  non-qualified  plans  for  certain  senior

On  November  27,  2007,  the  Company  entered  into  an

employees.  AMG’s  other  Affiliates  generally  have  separate

amended and restated senior credit facility (the “Facility”).

defined  contribution  retirement  plans.  Under  each  of  the

The Facility allows the Company to borrow an aggregate of

qualified plans, AMG and each participating Affiliate, as the

$950,000. The Facility is comprised of a $750,000 revolv-

case may be, are able to make discretionary contributions for

ing credit facility (the “Revolver”) and a $200,000 term loan

the benefit of qualified plan participants up to IRS limits.

(the  “Term  Loan”).  The  Company  pays  interest  on  these

obligations at specified rates (based either on the Eurodollar

The Company’s non-qualified Executive Retention Plan (the

rate  or  the  prime  rate  as  in  effect  from  time  to  time)  that

“ERP”) is designed to work in concert with the Company’s

vary depending on the Company’s credit rating. The Term

stockholder-approved Long-Term Executive Incentive Plan,

Loan requires principal payments to be made at specified dates

providing a trust vehicle for long-term compensation awards

until maturity. Subject to the agreement of lenders to provide

based  upon  the  Company’s  performance  and  growth.  The

additional  commitments,  the  Company  has  the  option  to

ERP permits the Compensation Committee to make awards

increase the Facility by up to an additional $250,000.

that  may  be  invested  by  the  recipient  in  the  Company’s

common  stock,  in  Affiliate  investment  products,  and  in

The  Facility  will  mature  in  February  2012,  and  contains

cash accounts, in each case subject to vesting and forfeiture

financial  covenants  with  respect  to  leverage  and  interest

provisions.  The  Company’s  contributions  to  the  ERP  are

coverage. The  Facility  also  contains  customary  affirmative

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68

 
 
 
 
and negative covenants, including limitations on indebted-

securities  with  cash,  shares  of  its  common  stock  or  some

ness,  liens,  cash  dividends  and  fundamental  corporate

combination  thereof.  The  Company  has  the  option  to

changes. Borrowings under the Facility are collateralized by

redeem the securities for cash at their accreted value. Under

pledges of the substantial majority of capital stock or other

the  terms  of  the  indenture  governing  the  zero  coupon

equity  interests  owned  by  the  Company.  The  Company

convertible notes, a holder may convert such security into

pays a quarterly commitment fee on the daily unused por-

common stock by following the conversion procedures in

tion  of  the  Facility,  which  amounted  to  $676,  $602  and

the  indenture.  Subject  to  changes  in  the  price  of  the

$443 in 2005, 2006 and 2007, respectively.

Company’s  common  stock,  the  zero  coupon  convertible

notes may not be convertible in certain future periods.

9

Senior Convertible Securities

The components of senior convertible securities are as follows:

In 2006, the Company amended the zero coupon convert-

ible  notes.  Under  the  terms  of  this  amendment,  the

Company will pay interest through May 7, 2008 at a rate of

At December 31,

0.375% per year on the principal amount at maturity of the

2006

2007

notes in addition to the accrual of the original issue discount.

Zero coupon

senior convertible notes

$ 113,358

$ 78,083

Floating rate 

senior convertible securities

300,000

300,000

$ 413,358

$ 378,083

Zero Coupon Senior Convertible Notes

Floating Rate Senior Convertible Securities
(See also Note 27—Subsequent Events)

In  2003,  the  Company  issued  $300,000  of  floating  rate

senior  convertible  securities  due  2033  (“floating  rate  con-

vertible  securities”),  bearing  interest  at  a  rate  equal  to

3-month LIBOR minus 0.50%, payable quarterly in cash.

In  2001,  the  Company  issued  $251,000  of  principal

Each  security  is  convertible  into  shares  of  the  Company’s

amount at maturity of zero coupon senior convertible notes

common stock (at a base conversion price of $54.17) upon

due 2021 (“zero coupon convertible notes”), with each note

the  occurrence  of  certain  events,  including  the  following:

issued at 90.50% of such principal amount and accreting at

(i) if the closing price of a share of the Company’s common

a  rate  of  0.50%  per  year.  As  of  December  31,  2007,

stock exceeds $65.00 over certain periods; (ii) if the credit

$83,452  principal  amount  at  maturity  remains  outstand-

rating  assigned  by  Standard  &  Poor’s  to  the  securities  is

ing. Each security is convertible into 17.429 shares of the

below BB-; or (iii) if the Company calls the securities for

Company’s  common  stock  (at  a  current  base  conversion

redemption. Upon conversion, holders of the securities will

price  of  $53.68)  upon  the  occurrence  of  certain  events,

receive 18.462 shares of the Company’s common stock for

including the following: (i) if the closing price of a share of

each convertible security. In addition, if the market price of

its common stock is more than a specified price over certain

the Company’s common stock exceeds the base conversion

periods (initially $62.36 and increasing incrementally at the

price  at  the  time  of  conversion,  holders  will  receive

end of each calendar quarter to $63.08 in April 2021); (ii)

additional shares of common stock based on the stock price

if  the  credit  rating  assigned  by  Standard  &  Poor’s  to  the

at that time. Based on the trading price of the Company’s

securities  is  below  BB-;  or  (iii)  if  the  Company  calls  the

common stock as of December 31, 2007, upon conversion,

securities  for  redemption.  The  holders  may  require  the

a holder of each security would receive an additional 6.062

Company to repurchase the securities at their accreted value

shares. The holders of the floating rate convertible securities

in May 2011 and 2016. If the holders exercise this option

may  require  the  Company  to  repurchase  such  securities

in  the  future,  the  Company  may  elect  to  repurchase  the

in  February  2008,  2013,  2018,  2023  and  2028,  at  their

69

principal  amount. The  Company  may  choose  to  pay  the

The holder’s obligations under the forward equity purchase

purchase price for such repurchases with cash, shares of the

contracts  were  collateralized  by  the  pledge  of  the  senior

Company’s  common  stock  or  some  combination  thereof.

notes to the Company. The number of shares to be issued in

The Company has rights to redeem the convertible securities

February 2008 will be determined based upon the average

for cash at any time on or after February 25, 2008, at their

trading price of the Company’s common stock for a period

principal amount plus accrued and unpaid interest. Under

preceding that date. Depending on the average trading price

the terms of the indenture governing the floating rate con-

in that period, the settlement rate will range from 11.785

vertible securities, a holder may convert such security into

to  18.031 shares  per  $1,000  purchase  contract.  Based  on

common stock by following the conversion procedures in

the  trading  price  of  the  Company’s  common  stock  as  of

the  indenture;  subject  to  changes  in  the  price  of  the

December  31,  2007,  the  purchase  contracts  would  have  a

Company’s common stock, floating rate convertible securi-

settlement rate of 13.519.

ties may not be convertible in certain future periods.

In the first quarter of 2008, the Company called the out-

outstanding senior notes component of its 2004 PRIDES.

standing floating rate convertible securities for redemption.

Following  the  consummation  of  these  transactions,  all  of

In  lieu  of  redemption,  substantially  all  of  the  holders

the 2004 PRIDES have been cancelled and retired.

In the first quarter of 2008, the Company repurchased the

elected  to  convert  their  securities.  Following  the  consum-

mation of these transactions, all of the Company’s floating

rate convertible securities will be cancelled and retired.

11

Junior Convertible Trust Preferred Securities

In 2006, the Company issued $300,000 of junior subordi-

The  floating  rate  senior  convertible  securities  are  consid-

nated convertible debentures due 2036 to a wholly-owned

ered  contingent  payment  debt  instruments  under  federal

trust  simultaneous  with  the  issuance,  by  the  trust,  of

income  tax  regulations.  These  regulations  required  the

$291,000  of  convertible  trust  preferred  securities  to

Company to deduct interest in an amount greater than its

investors. The  junior  subordinated  convertible  debentures

reported  interest  expense,  and  resulted  in  annual  deferred

and  convertible  trust  preferred  securities  (together,  the

tax  liabilities  of  $3,700.  Because  the  trading  price  of  the

“2006  junior  convertible  trust  preferred  securities”)  have

Company’s common stock exceeded $60.90 at the time of

substantially the same terms.

the  conversions,  $18,292  of  accumulated  deferred  tax

liabilities attributable to these securities will be reclassified

The  2006  junior  convertible  trust  preferred  securities  bear

to stockholders’ equity.

10

Mandatory Convertible Securities
(See also Note 27—Subsequent Events)

interest  at  a  rate  of  5.1%  per  annum,  payable  quarterly  in

cash. Each $50 security is convertible, at any time, into 0.333

shares of the Company’s common stock, which represents a

conversion price of $150 per share (or a 48% premium to the

then  prevailing  share  price  of  $101.45).  Upon  conversion,

In 2004, the Company issued $300,000 of mandatory con-

investors  will  receive  cash  or  shares  of  the  Company’s

vertible securities (“2004 PRIDES”), each unit consisting of

common  stock  (or  a  combination  of  cash  and  common

(i) a senior note due February 2010 with a principal amount

stock)  at  the  election  of  the  Company.  The  2006  junior

of  $1,000  per  note,  with  interest  payable  quarterly  at  the

convertible trust preferred securities may not be redeemed by

annual rate of 4.125%, and (ii) a forward equity purchase

the Company prior to April 15, 2011. On or after April 15,

contract  pursuant  to  which  the  holder  agreed  to  purchase

2011,  they  may  be  redeemed  if  the  closing  price  of  the

shares of the Company’s common stock in February 2008.

Company’s  common  stock  exceeds  $195  per  share  for  a

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70

 
 
 
 
specified period of time. The trust’s only assets are the junior

deemed to be uncertain. On January 1, 2007 the Company

convertible subordinated debentures. To the extent that the

carried  a  liability  for  uncertain  tax  positions  of  $21,315,

trust has available funds, the Company is obligated to ensure

including  $3,761  for  interest  and  related  charges.  On

that holders of the 2006 convertible trust preferred securities

December  31,  2007,  this  liability  was  $22,506,  including

receive all payments due from the trust.

interest  and  related  charges  of  $3,877.  The  adoption  of 

FIN  48  did  not  result  in  an  adjustment  to  the  Company’s

In  October  2007,  the  Company  issued  an  additional

liability  for  uncertain  tax  positions  or  retained  earnings.

$500,000  of  junior  subordinated  convertible  debentures

These liabilities at January 1, 2007 and December 31, 2007

which are due 2037 to a wholly-owned trust simultaneous

included $11,847 and $12,619, respectively, for tax positions

with the issuance, by the trust, of $500,000 of convertible

that, if recognized, would affect the Company’s effective tax

trust  preferred  securities  to  investors.  The  junior  subordi-

rate. A reconciliation of the beginning and ending amount

nated  convertible  debentures  and  convertible  trust  pre-

of unrecognized tax benefits is as follows:

ferred securities (together, the “2007 junior convertible trust

preferred  securities”)  have  substantially  the  same  terms

as the 2006 junior subordinated convertible debentures.

Balance at January 1, 2007

The 2007 junior convertible trust preferred securities bear

interest  at  5.15%  per  annum,  payable  quarterly  in  cash.

Each  $50  security  is  convertible,  at  any  time,  into  0.25

shares of the Company’s common stock, which represents a

conversion price of $200 per share (or a 53% premium to

the then prevailing share price of $130.77). Upon conver-

sion, investors will receive cash or shares of the Company’s

common  stock  (or  a  combination  of  cash  and  common

stock)  at  the  election  of  the  Company.  The  2007  junior

convertible  trust  preferred  securities  may  not  be  redeemed

by  the  Company  prior  to  October  15,  2012.  On  or  after

October 15, 2012, they may be redeemed if the closing price

of the Company’s common stock exceeds $260 purchase for

a  specified  period  of  time.  The  trust’s  only  assets  are  the

2007  junior  convertible  subordinated  debentures.  To  the

extent  that  the  trust  has  available  funds,  the  Company  is

obligated  to  ensure  that  holders  of  the  convertible  trust

preferred securities receive all payments due from the trust.

12

Income Taxes

Effective  January  1,  2007,  the  Company  adopted  FASB

Interpretation  No.  48,  “Accounting  for  Uncertainty  in

Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting

for  liabilities  related  to  tax  return  positions  that  may  be

Additions based on tax positions related to current year

Additions based on tax positions of prior years

Reductions for tax provisions of prior years

Settlements

$ 21,315

4,381

116

—
—

Reductions related to lapses of statutes of limitations

(3,306)

Balance at December 31, 2007

$ 22,506

The Company or its subsidiaries files income tax returns in

federal,  various  state,  and  foreign  jurisdictions.  With  few

exceptions, the Company is no longer subject to income tax

examinations by any tax authorities for years before 2004.

A summary of the provision for income taxes is as follows:

Current:
Federal
State
Foreign

Deferred:
Federal
State
Foreign

Year Ended December 31,

2005

2006

2007

$ 31,399
2,005
5,491

$38,971
6,344
9,952

$ 52,012
8,124
14,498

30,424
2,158
(894)

33,261
1,900
(3,818)

33,582
1,954
(3,304)

$ 70,583

$86,610

$106,866

71

The components of income before income taxes consisted

Deferred tax liabilities are primarily the result of tax deduc-

of the following:

Year Ended December 31,

tions  for  the  Company’s  intangible  assets  and  convertible

securities.  The  Company  amortizes  most  of  its  intangible

2005

2006

2007

assets  for  tax  purposes  only,  reducing  its  tax  basis  below  its

Domestic

Foreign

$ 163,912

$ 186,249

$ 221,798

25,740 

51,638

67,029

$ 189,652

$ 237,887

$ 288,827

The  Company’s  effective  income  tax  rate  differs  from  the

amount  computed  by  using  income  before  income  taxes

and  applying  the  U.S.  federal  income  tax  rate  to  such

amount because of the effect of the following items:

Tax at U.S. federal 
income tax rate

State income taxes, 

net of federal benefit

Non-deductible expenses

Valuation allowance

Foreign taxes

Foreign tax credits

Year Ended December 31,

2005

2006

2007

35.0%

35.0%

35.0%

1.4

0.2

0.6

2.9

2.2

—

0.8

2.6

1.6

0.2

1.3

3.9

(2.9)

37.2%

(4.2)

36.4%

(5.0)

37.0%

The components of deferred tax assets and liabilities are

as follows:

carrying value for financial statement purposes and generating

deferred taxes each reporting period. In contrast, the intangi-

ble assets associated with the Company’s recent investment in

its Canadian Affiliates are not deductible for tax purposes, but

certain  of  these  assets  are  amortized  for  book  purposes.  As

such, at the time of its investment, the Company recorded a

deferred tax liability that represents the tax effect of the future

book  amortization  of  these  assets.  The  Company’s  floating

rate  senior  convertible  securities,  mandatory  convertible

securities and junior convertible trust preferred securities also

currently  generate  tax  deductions  that  are  higher  than  the

interest expense recorded for financial statement purposes.

At December 31, 2007, the Company had state net operat-

ing loss carryforwards that will expire over a 15-year period

beginning in 2006. The valuation allowances at December

31, 2006 and 2007 are related to the uncertainty of the real-

ization of most of these loss carryforwards, which realization

depends  upon  the  Company’s  generation  of  sufficient

taxable income prior to their expiration. The change in the

valuation allowance for the year ended December 31, 2007

is principally attributable to state net operating losses during

At December 31,

this  period  and  a  provision  for  loss  carryforwards  that  the

2006

2007

Company does not expect to realize.

Deferred assets (liabilities):

Intangible asset amortization

$ (170,216)

$ (193,275)

Convertible securities interest

(19,807)

(28,215)

In  2006,  the  Company  reduced  its  deferred  tax  liabilities

for  non-deductible  intangible  amortization  by  $1,408  to

reflect a reduction in Canadian federal income tax rates that

was enacted in June 2006 and will become effective begin-

ning in 2008. The reduction of these deferred tax liabilities

was recorded as a benefit in the 2006 income tax provision.

13

Derivative Financial Instruments

(26,946)

(26,668)

14,126

—

(1,956)

739

(398)

18,023

(8,005)

(3,562)

2,196

507

Non-deductible intangible

amortization

State net operating loss

and credit carryforwards

Deferred compensation

Fixed asset depreciation

Accrued expenses

Deferred income

Valuation allowance

Net deferred income taxes

$ (218,584)

$ (257,022)

interest rates. As of December 31, 2007, the Company was

(204,458)

(238,999)

(14,126)

(18,023)

The Company periodically uses interest rate hedging con-

tracts to manage market exposures associated with changing

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a  party  to  interest  rate  hedging  contracts  with  a  $150

The  components  of  accumulated  other  comprehensive

million notional amount, which fixed the interest rate on a

income, net of taxes, were as follows:

portion of the floating rate senior convertible securities to a

weighted  average  interest  rate  of  approximately  3.28%

through February 2008.

The Company records all derivatives on the balance sheet at

fair value. As cash flow hedges, the effective portion of the

At December 31,

2006

2007

Foreign currency

translation adjustment

$ 13,081

$ 64,556

Unrealized gain on

derivative instruments

1,508

77

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unrealized  gain  or  loss  on  the  derivative  instruments  is

Unrealized gain

recorded in accumulated other comprehensive income as a

on investment securities

separate  component  of  stockholders’  equity.  At  December

Accumulated other

31, 2006 and 2007, the unrealized gain, before taxes, on the

derivative  instruments  was  $2,392  and  $283,  respectively.

The Company expects no portion of the unrealized gain to

be  reclassified  from  accumulated  other  comprehensive

income to Net Income over the next 12 months.

14

Comprehensive Income

A summary of comprehensive income, net of applicable taxes,

is as follows:

comprehensive income

$ 14,666

$ 64,737

15

Commitments and Contingencies

The Company and its Affiliates are subject to claims, legal

proceedings and other contingencies in the ordinary course

of their business activities. Each of these matters is subject to

various  uncertainties,  and  it  is  possible  that  some  of  these

matters  may  be  resolved  in  a  manner  unfavorable  to  the

Company or its Affiliates. The Company and its Affiliates

establish  accruals  for  matters  for  which  the  outcome  is

Year Ended December 31,

probable  and  can  be  reasonably  estimated.  Management

2005

2006

2007

believes that any liability in excess of these accruals upon the

Net Income

$ 119,069

$ 151,277

$ 181,961

ultimate resolution of these matters will not have a material

Foreign currency
translation
adjustment

Change in net

unrealized gain
(loss) on derivative
instruments

Change in unrealized

gain (loss) on
investment securities

Reclassification of
unrealized gain
on investment
securities to
realized gain

Comprehensive

income

13,781

(1,832)

51,475

adverse  effect  on  the  consolidated  financial  condition  or

results of operations of the Company.

Certain Affiliates operate under regulatory authorities which

require  that  they  maintain  minimum  financial  or  capital

2,098

(358)

(1,328)

requirements. Management is not aware of any violations of

such financial requirements occurring during the period.

(50)

100

(76)

(610)

—

—

16

Business Combinations

The  Company’s  Affiliate  investments  totaled  $267,169,

$144,580 and $610,235 in the years ended December 31,
2005, 2006 and 2007, respectively. These investments were

$ 134,288

$ 149,187

$ 232,032

made pursuant to the Company’s growth strategy designed

to  generate  shareholder  value  by  making  investments  in

boutique investment management firms and other strategic

73

transactions designed to expand the Company’s participa-

transaction  was  financed  through  borrowings  under  the

tion in its three principal distribution channels.

Company’s senior credit facility.

In December 2007, the Company acquired a minority interest

In  2005,  the  Company  completed  the  acquisition  of  a

in  BlueMountain  Capital  Management  (“BlueMountain”),

group  of  Canadian  asset  management  firms.  These  firms

a  leading  global  credit  alternatives  manager  specializing  in

manage approximately 100 investment products, including

relative value strategies in the corporate loan, bond, credit and

Canadian, U.S. and international value and growth equity

equity derivatives markets. BlueMountain has offices in New

products, as well as balanced, fixed income, venture capital

York and London, and manages assets on behalf of predomi-

and structured products. These firms operate in each of the

nantly institutional and high net worth clients. This transac-

Company’s  three  distribution  channels.  The  transaction

tion was financed through borrowings under the Company’s

was  financed  through  borrowings  under  the  Company’s

senior credit facility.

senior  credit  facility,  the  issuance  of  common  stock,  and

In  November  2007,  the  Company  acquired  a  minority

available cash.

interest in ValueAct Capital (“ValueAct”), a San Francisco–

In  2005,  through  Managers  Investment  Group  LLC,  the

based  alternative  investment  firm  that  establishes  owner-

Company  completed  the  acquisition  of  approximately  $3.0

ship  interests  in  undervalued  companies  and  works  with

billion of assets under management from Fremont Investment

each  company’s  management  and  Board  of  Directors  to

Advisors, Inc. (“FIA”). The acquisition included the Fremont

implement  business  strategies  that  enhance  shareholder

Funds, a diversified family of no load mutual funds managed

value.  ValueAct  has  over  250  clients,  including  endow-

by independent sub advisors and professionals at FIA, as well

ments,  foundations,  corporations,  family  offices,  high  net

as  FIA  assets  in  separate  accounts  and  401(k)  plans.  The

worth  investors  and  funds  of  funds. This  transaction  was

transaction was financed through available cash.

financed through borrowings under the Company’s senior

credit facility.

The  assets  and  liabilities  of  the  investments  in  acquired

businesses are accounted for under the purchase method of

In 2006, the Company expanded its product offerings in the

accounting and recorded at their fair values at the dates of

Institutional distribution channel through the acquisition of

acquisition.  The  excess  of  the  purchase  price  over  the

a majority equity interest in Chicago Equity Partners, LLC

estimated fair values of the net assets acquired is recorded as

(“Chicago  Equity”),  which  manages  a  wide  range  of  U.S.

an  increase  in  goodwill.  The  results  of  operations  of

equity  and  fixed  income  products  across  multiple  capital-

acquired businesses have been included in the Consolidated

ization sectors and investment styles. The firm’s client base

Financial  Statements  beginning  as  of  the  date  of  acquisi-

includes  over  120  institutional  investors,  including  public

tion.  The  following  table  summarizes  the  net  assets

funds,  corporations,  endowments  and  foundations,  Taft-

acquired  as  of  the  respective  acquisition  dates  during  the

Hartley plan sponsors and certain mutual fund advisers. The

years ended December 31, 2006 and 2007:

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74

 
 
 
 
Current assets, net

Fixed assets

Definite-lived acquired
client relationships

Indefinite-lived acquired
client relationships

Equity investments in Affiliates(2)

Goodwill

2006(1)

$  11,488

$ 

2,045

2007

—

—

43,481

19,876

2,611

—

87,040

4,577

541,377

18,262

Net assets acquired

$ 146,665

$ 584,092

(1) In  2007,  the  Company  finalized  the  purchase  price  allocation  of

Chicago Equity.

(2) The Company’s 2007 investments in BlueMountain and ValueAct are
accounted for under the equity method of accounting. The Company’s
purchase price allocations of these investments are subject to the final-
ization of the valuations of acquired client relationships. As a result,
these preliminary amounts may be revised in future periods.

Unaudited pro forma financial results are set forth below,

giving consideration to the investments and acquisitions in

2006 and 2007, as if such transactions occurred as of the

beginning of 2006, assuming revenue sharing arrangements

had  been  in  effect  for  the  entire  period  and  after  making

certain other pro forma adjustments.

In addition to the investments described above, in the years

ended December 31, 2005, 2006, and 2007, the Company

completed additional investments in existing Affiliates and

transferred  interests  in  certain  affiliated  investment  man-

agement  firms.  The  financial  effect  of  these  transactions

was not material to the Company’s results.

Many  of  the  Company’s  operating  agreements  provide

Affiliate  managers  a  conditional  right  to  require  AMG  to

purchase their retained equity interests at certain intervals.

Certain agreements also provide AMG a conditional right

to  require  Affiliate  managers  to  sell  their  retained  equity

interests to the Company at certain intervals and upon their

death, permanent incapacity or termination of employment

and  provide  Affiliate  managers  a  conditional  right  to

require  the  Company  to  purchase  such  retained  equity

interests upon the occurrence of specified events. The pur-

chase price of these conditional purchases are generally cal-

culated  based  upon  a  multiple  of  the  Affiliate’s  cash  flow

distributions, which is intended to represent fair value. As

one measure of the potential magnitude of such purchases,

in the event that a triggering event and resulting purchase

Revenue

Net Income

Year Ended December 31,

occurred with respect to all such retained equity interests as

2006

2007

of December 31, 2007, the aggregate amount of these pay-

$ 1,201,686

$ 1,369,866

ments  would  have  totaled  approximately  $1,470,100.  In

167,000

172,581

the  event  that  all  such  transactions  were  closed,  AMG

Earnings per share—basic

$ 

Earnings per share—diluted

$ 

5.34

4.09

5.86

4.37

In  connection  with  certain  investments  in  Affiliates,  the

Company is contingently liable, upon achievement of speci-

fied financial targets, to make additional purchase payments

of up to $232,000 through 2011. The Company expects it

will make payments of up to $70,000 in 2008. If these pay-

ments occur, the Company will record incremental goodwill.

As  of  December  31,  2007  the  Company  has  recorded

would  own  the  prospective  cash  flow  distributions  of  all

equity interests that would be purchased from the Affiliate

managers.  As  of  December  31,  2007,  this  amount  would

represent approximately $204,400 on an annualized basis.

17

Goodwill and Acquired Client Relationships 

In  2006  and  2007,  the  Company  acquired  interests  from

and transferred interests to Affiliate management partners.

Most  of  the  goodwill  acquired  during  the  year  is  tax

$50,000  of  these  payments  because  certain  of  these  targets
had been achieved.

deductible.

75

The following table presents the change in goodwill during 2006 and 2007:

Balance, as of December 31, 2005
Goodwill acquired, net
Foreign currency translation

Balance, as of December 31, 2006
Goodwill acquired, net
Foreign currency translation

Balance, as of December 31, 2007

Mutual
Fund

$ 437,309
17,490
(238)

454,561
3,881
15,893

Institutional

$ 445,609
58,692
(233)

504,068
9,604
15,523

High Net
Worth

$210,331
8,350
(83)

218,598
2,715
5,544

Total

$1,093,249
84,532
(554)

1,177,227
16,200
36,960

$ 474,335

$ 529,195

$226,857

$1,230,387

In connection with the Company’s equity method investments, approximately $185,300 and $572,323 of goodwill has

been classified within Equity investments in Affiliates as of December 31, 2006 and 2007, respectively.

The  following  table  reflects  the  components  of  intangible  assets  of  the  Company’s  Affiliates  that  are  consolidated  as  of

December 31, 2006 and 2007:

Amortized intangible assets:
Acquired client relationships

2006

2007

Carrying
Amount

Accumulated
Amortization

Carrying
Amount

Accumulated
Amortization

$  379,703

$136,486

$

401,303

$ 168,139

Non-amortized intangible assets: 
Acquired client relationships—mutual fund management contracts
Goodwill

258,849
1,177,227

—
—

263,438
1,230,387

—
—

For the Company’s Affiliates that are consolidated, definite-

approximately $20,000 for the next five years, assuming no

lived  acquired  client  relationships  are  amortized  over  their

useful life changes.

expected useful lives. As of December 31, 2007, these rela-

tionships were being amortized over a weighted average life

of  11  years. The  Company  estimates  that  its  consolidated

18

Minority Interest

annual amortization expense will be approximately $31,500

Minority interest in the Consolidated Statements of Income

for  the  next  five  years,  assuming  no  useful  life  changes  or

includes  the  income  allocated  to  owners  of  consolidated

additional investments in new or existing Affiliates.

Affiliates,  other  than  AMG.  For  the  years  ended  December

31,  2005,  2006  and  2007,  this  income  was  $144,263,

The definite-lived acquired client relationships attributable

$212,523  and  $241,987,  respectively.  Minority  interest  on

to the Company’s equity method investments are amortized

the Consolidated Balance Sheets includes capital and undis-

over their expected useful lives. As of December 31, 2007,

tributed profits owned by the managers of the consolidated

these relationships were being amortized over approximately
13 years. Amortization expense for these relationships was

Affiliates (including profits allocated to managers from the
Owners’ Allocation and Operating Allocation). For the years

$9,290 and $10,386 for 2006 and 2007, respectively. The

ended December 31, 2005, 2006 and 2007, profit distribu-

Company  estimates  that  the  annual  amortization  expense

tions to management owners were $185,732, $287,899 and

attributable to its current equity-method Affiliates will be

$321,505, respectively.

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76

 
 
 
 
19

Stockholders’ Equity

Preferred Stock

share. In the year ended December 31, 2007, the Company

repurchased 3,609,394 shares of common stock at an average

price  of  $120.59  per  share  (including  1,578,300  shares

The Company is authorized to issue up to 5,000,000 shares of

through  its  prepaid  forward  purchase  agreement  and

Preferred Stock in classes or series and to fix the designations,

115,789  shares  of  common  stock  upon  the  settlement  of

powers, preferences and the relative, participating, optional or

certain call spread option agreements). As of December 31,

other special rights of the shares of each series and any qualifi-

2007,  the  Company  had  the  ability  to  acquire  up  to

cations, limitations and restrictions thereon as set forth in the

1,880,106  shares  of  common  stock  under  its  authorized

stock  certificate.  Any  such  Preferred  Stock  issued  by  the

share repurchase program.

Company  may  rank  prior  to  common  stock  as  to  dividend

rights,  liquidation  preference  or  both,  may  have  full  or

In  the  first  quarter  of  2008,  the  Company  will  issue  an

limited voting rights and may be convertible into shares of

aggregate  of  approximately  11,000,000  shares  of  voting

common stock.

Common Stock

The  Company’s  Board  of  Directors  has  authorized  the

issuance of up to 150,000,000 shares of Voting Common

Stock  and  3,000,000  shares  of  Class  B  Non-Voting

common  stock  in  connection  with  certain  private

exchanges  and  conversions  of  its  floating  rate  convertible

securities and certain private exchanges and the settlement

of the forward equity purchase contracts related to its 2004

PRIDES, as more fully discussed in Note 27.

Common Stock.

Financial Instruments

In  recent  periods,  the  Company’s  Board  of  Directors  has

equity contracts that required holders to purchase shares of

authorized the following share repurchase programs:

the  Company’s  common  stock 

in  February  2008.

The Company’s 2004 PRIDES contain freestanding forward

in March 2006 in connection with the issuance of the

2006 junior convertible trust preferred securities, up to

an additional 4,000,000 shares of common stock;

in  July  2006,  up  to  an  additional  1,516,943  shares  of

common stock;

in February 2007, up to an additional 3,000,000 shares

of common stock; and

in October 2007, in connection with the issuance of the

2007 junior convertible trust preferred securities up to

an  additional  2,500,000  shares  pursuant  to  a  prepaid

forward  purchase  contract  which  the  Company  may

elect to settle on or before October 15, 2012.

Additionally, the Company’s zero coupon convertible notes,

floating  rate  convertible  securities  and  junior  convertible

trust  preferred  securities  contain  an  embedded  right  for

holders  to  receive  shares  of  the  Company’s  common  stock

under  certain  conditions.  All  of  these  arrangements,  the

forward equity sale agreement, the forward equity purchase

contract and call spread option agreements meet the definition

of equity under FASB Emerging Issues Task Force Issue No.

00-19,  “Accounting  for  Derivative  Financial  Instruments

Indexed  to,  and  Potentially  Settled  in,  a  Company’s  Own

Stock” and are not required to be accounted for separately as

derivative instruments.

Stock Option and Incentive Plans

The timing and amount of purchases are determined at the

The  Company  established  the  1997  Stock  Option  and

discretion  of  AMG’s  management.  In  the  year  ended

Incentive Plan (as amended and restated, the “1997 Plan”),

December 31,  2006, the Company repurchased 5,482,047

under which it is authorized to grant options to employees

shares  of  common  stock  at  an  average  price  of  $98.10  per

and  directors.  In  2002,  stockholders  approved  an  amend-

77

ment  to  increase  the  number  of  shares  of  common  stock

The  following  table  summarizes  the  transactions  of  the

authorized for issuance under this plan to 7,875,000.

Company’s stock option and incentive plans:

In 2002, the Company’s Board of Directors established the

2002  Stock  Option  and  Incentive  Plan  (as  amended  and

restated,  the  “2002  Plan”),  under  which  the  Company  is

authorized to grant non-qualified stock options and certain

other awards to employees and directors. This plan requires

that the majority of grants under the plan in any three-year

period must be issued to employees of the Company who

are not executive officers or directors of the Company. This

plan  was  approved  by  the  Company’s  Board  of  Directors.

There  are  3,375,000  shares  of  the  Company’s  common

stock authorized for issuance under this plan.

In  December  2003,  the  Board  of  Directors  approved  an

amendment  to  each  of  the  1997  Plan  and  2002  Plan  to

accelerate  the  vesting  of  the  then-outstanding  unvested

options  (other  than  options  granted  to  directors).  The

shares issuable upon the exercise of the accelerated options

Stock 
Options

Weighted
Average
Exercise Price

Weighted
Average
Remaining
Contractual
Life (years)

Unexercised options 
outstanding—
January 1, 2007

7,404,822

$

50.49

Options granted

1,480,500

115.85

Options exercised

(1,514,912)

Options forfeited

(189,624)

35.40

71.63

Unexercised options
outstanding—
December 31, 2007

Exercisable at

7,180,786

66.59

December 31, 2007

4,967,459

46.88

5.0

4.2

Exercisable and free

from restrictions on
transfer at
December 31, 2007

4,424,228

45.04

3.8

remain  subject  to  restrictions  on  transfer  which  lapse

The Company generally uses treasury stock to settle stock

according to specified schedules, for so long as the option

option exercises. The total intrinsic value of options exer-

holder remains employed by the Company. In the event the

cised during the years ended December 31, 2005, 2006 and

option holder ceases to be employed by the Company, the

2007 was $41,442, $78,371 and $115,568, respectively. As

transfer restrictions will remain outstanding until the later

of December 31, 2007, the intrinsic value of options that

of December 2010, or seven years after the date of grant.

were  vested  and  free  from  restrictions  on  transfer  was

$320,403.  As  of  that  date,  the  total  intrinsic  value  of  all

In May 2006, the stockholders of the Company approved

vested  options  (including  those  subject  to  restrictions  on

the  2006  Stock  Option  and  Incentive  Plan  (the  “2006

transfer) was $350,603, and the intrinsic value of unvested

Plan”),  under  which  the  Company  is  authorized  to  grant

options was $14,683.

stock options and stock appreciation rights to senior man-

agement,  employees  and  directors.  There  are  3,000,000

During  the  year  ended  December  31,  2007,  the  cash

shares  of  the  Company’s  common  stock  authorized  for

received  and  the  actual  tax  benefit  recognized  for  options

issuance under this plan.

exercised were $52,417 and $42,308, respectively. During

the year ended December 31, 2007, the excess tax benefit

The plans are administered by a committee of the Board of

classified as a financing cash flow was $36,528. During the

Directors.  Under  the  plans,  options  generally  vest  over  a

year ended December 31, 2006, the cash received and the

period of three to five years and expire seven to ten years

actual  tax  benefit  recognized  for  options  exercised  were

after  the  grant  date.  All  options  have  been  granted  with

$41,886 and $28,529, respectively. During the year ended

exercise  prices  equal  to  the  fair  market  value  of  the

December  31,  2006,  the  excess  tax  benefit  classified  as  a

Company’s common stock on the date of grant.

financing cash flow was $23,047.

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The Company’s Net Income for the year ended December

is recorded as compensation expense over the service period

31,  2007  includes  $9,039  of  compensation  expense  and

as equity-based compensation.

$3,345  of  income  tax  benefits,  related  to  the  share-based

compensation  arrangements. The  Company’s  Net  Income

for the year ended December 31, 2006 includes $1,654 of

compensation  expense  and  $612  of  income  tax  benefits,

related  to  the  share-based  compensation  arrangements.

As of December 31, 2007, there was $55,315 of deferred

compensation expense related to stock options which will

be  recognized  over  a  weighted  average  period  of  approxi-

mately four years (assuming no forfeitures).

The  fair  value  of  options  granted  is  estimated  using  the

Black-Scholes option pricing model. The weighted average

fair  value  of  options  granted  during  the  years  ended

December 31, 2005, 2006 and 2007 was $20.95, $28.66

and $26.88 per option, respectively, based on the assump-

tions stated below.

20

Call Spread Option Agreements

In  2006,  the  Company  entered  into  a  series  of  contracts

that provided the option, but not the obligation, to repur-

chase  up  to  917,000  shares  of  its  common  stock  at  a

weighted  average  price  of  $99.59  per  share  at  specified

times. Upon exercise, the Company could elect to receive

the intrinsic value of a contract in cash or common stock.

During  2007,  the  Company  exercised  917,000  options

with a total intrinsic value of $21,149. The Company elected

to receive approximately 116,000 shares of common stock

and  used  the  remaining  proceeds  ($6,800)  to  enter  into

another series of contracts that provide the option, but not

the  obligation,  to  repurchase  up  to  800,000  shares  of  its

common stock at a weighted average price of $120.89 per

share. These options may be exercised or will expire during

Year Ended December 31,

2005

2006

2007

the first quarter of 2008.

Dividend yield

Expected volatility(1)

Risk-free interest rate(2)

Expected life of options

(in years)(3)

Forfeiture rate(3)

0.0%

19.9%

4.4%

5.0

0.0%

0.0%

22.6%

4.9%

4.4

5.0%

0.0%

23.8%

3.1%

3.8

5.0%

(1) Based on the historical and implied volatility of the Company’s com-

mon stock.

21

Earnings Per Share

The  calculation  of  basic  earnings  per  share  is  based  on  the

weighted  average  number  of  shares  of  the  Company’s  com-

mon stock outstanding during the period. Diluted earnings

per share is similar to basic earnings per share, but adjusts for

the effect of the potential issuance of incremental shares of the

(2) Based on the U.S. Treasury yield curve in effect at the date of grant.

Company’s common stock. The following is a reconciliation

(3) Based on historical data and expected exercise behavior.

of the numerator and denominator used in the calculation

of basic and diluted earnings per share available to common

The  Company  periodically  issues  Affiliate  equity  interests

stockholders.  Unlike  all  other  dollar  amounts  in  these

to  certain  Affiliate  employees. The  estimated  fair  value  of

Notes, the amounts in the numerator reconciliation are not

equity granted in these awards, net of estimated forfeitures,

presented in thousands.

79

Year Ended December 31,

As more fully discussed in Notes 9, 10 and 11, the Company

2005

2006

2007

had convertible securities outstanding during the years ended

December 31, 2005, 2006 and 2007. The aggregate number

$119,069,000 $151,277,000 $181,961,000

of shares of common stock that could be issued in the future

to  settle  these  securities  is  deemed  outstanding  for  the

purposes of the calculation of diluted earnings per share. This

approach,  referred  to  as  the  if-converted  method,  requires

6,693,000

17,618,000

23,787,000

that such shares be deemed outstanding regardless of whether

$125,762,000 $168,895,000 $205,748,000

the  securities  are  then  contractually  convertible  into  the

Company’s common stock. For this if-converted calculation,

the interest expense (net of tax) attributable to these securities

Year Ended December 31,

is added back to Net Income, reflecting the assumption that

2005

2006

2007

the securities have been converted.

33,667,542

31,289,005

29,464,764

For the years ended December 31, 2005, 2006 and 2007,

the Company repurchased approximately 1.2, 5.5 and 3.6

million shares of common stock, respectively, under various

stock repurchase programs. The Company has repurchased

Numerator:
Net Income

Interest expense on
contingently
convertible
securities,
net of taxes

Net income,
as adjusted

Denominator: 
Average shares

outstanding—
basic

Effect of dilutive
instruments: 

Stock options

2,244,874

2,542,878

2,117,478

an  additional  100,000  shares,  from  January  1  through

88,654

—

—

February 26, 2008.

8,688,585

9,238,255

9,276,218

22

Financial Instruments and Risk Management

The  Company  is  exposed  to  market  risks  brought  on  by

changes  in  interest  and  currency  exchange  rates.  The

—

599,853

1,540,226

Company  has  not  entered  into  foreign  currency  transac-

Forward equity
agreement

Senior

convertible
securities

Mandatory

convertible
securities

Junior convertible
trust preferred
securities

—

1,489,011

2,523,098

Average shares

outstanding—
diluted

44,689,655

45,159,002

44,921,784

The  calculation  of  diluted  earnings  per  share  for  2005,

2006 and 2007 excludes the potential exercise of options to

purchase approximately 0.1, 0.9 and 2.3 million common

shares,  respectively,  because  their  effect  would  be  anti-

dilutive. In addition, the calculation of diluted earnings per
share  excludes  the  effect  of  the  outstanding  call  spread

option  agreements  for  all  periods  presented  because  their

effect would be anti-dilutive.

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tions  or  derivative  financial  instruments  to  reduce  risks

associated  with  changes  in  currency  exchange  rates.  The

Company  uses  derivative  financial  instruments  to  reduce

risks associated with changes in interest rates.

Notional amounts and credit exposures of derivatives

The  notional  amount  of  derivatives  does  not  represent

amounts that are exchanged by the parties, and thus are not

a  measure  of  the  Company’s  exposure.  The  amounts

exchanged  are  calculated  on  the  basis  of  the  notional  or
contract amounts, as well as on other terms of the interest

rate swap derivatives and the volatility of these rates and prices.

 
 
 
 
The Company would be exposed to credit-related losses in

Fair value of a financial instrument is the amount at which

the  event  of  nonperformance  by  the  counter  parties  that

the instrument could be exchanged in a current transaction

issued  the  financial  instruments,  although  the  Company

between willing parties, other than in a forced or liquidation

does not expect that the counter parties to interest rate swaps

sale. Quoted market prices are used when available; other-

will fail to meet their obligations, given their typically high

wise,  management  estimates  fair  value  based  on  prices  of

credit ratings. The credit exposure of derivative contracts is

financial instruments with similar characteristics or by using

represented  by  the  positive  fair  value  of  contracts  at  the

valuation techniques such as discounted cash flow models.

reporting  date,  reduced  by  the  effects  of  master  netting

Valuation  techniques  involve  uncertainties  and  require

agreements. The Company generally does not give or receive

assumptions  and  judgments  regarding  prepayments,  credit

collateral on interest rate swaps because of its own credit rat-

risk and discount rates. Changes in these assumptions will

ing and that of its counter parties.

result in different valuation estimates. The fair value presented

Interest Rate Risk Management

From  time  to  time,  the  Company  enters  into  derivative

financial  instruments  to  reduce  exposure  to  interest  rate

risk. The Company does not hold or issue derivative finan-

cial instruments for trading purposes. Derivative financial

instruments  are  intended  to  enable  the  Company  to

achieve  a  level  of  variable-rate  or  fixed-rate  debt  that  is

acceptable to management and to limit interest rate expo-

sure. The Company agrees with another party to exchange

the difference between fixed-rate and floating rate interest

amounts  calculated  by  reference  to  an  agreed  notional

principal amount.

Fair Value

would not necessarily be realized in an immediate sale nor

are  there  typically  plans  to  settle  liabilities  prior  to  con-

tractual maturity. Additionally, FAS 107 allows companies

to use a wide range of valuation techniques; therefore, it may

be  difficult  to  compare  the  Company’s  fair  value  informa-

tion to other companies’ fair value information.

The carrying amount of cash, cash equivalents and short-

term  investments  approximates  fair  value  because  of  the

short-term nature of these instruments. The carrying value

of notes receivable approximate fair value because interest

rates and other terms are at market rates. The carrying value

of notes payable approximates fair value principally because

of the short-term nature of the notes. The carrying value of

senior bank debt approximates fair value because the debt is

a  credit  facility  with  variable  interest  based  on  selected

Financial  Accounting  Standard  No.  107  (“FAS  107”),

short-term rates. The fair market value of the zero coupon

“Disclosures  about  Fair  Value  of  Financial  Instruments,”

senior  convertible  securities,  the  floating  rate  senior  con-

requires the Company to disclose the estimated fair values for

vertible  securities,  the  2004  mandatory  convertible  debt,

certain  of  its  financial  instruments.  Financial  instruments

and  the  junior  convertible  trust  preferred  securities  at

include  items  such  as  loans,  interest  rate  contracts,  notes

December  31,  2007  was  $171,076,  $866,625,  $479,625

payable and other items as defined in FAS 107.

and $746,790, respectively.

81

23

Selected Quarterly Financial Data (Unaudited)

24

Related Party Transactions

The following is a summary of the quarterly results of oper-

The Company periodically records amounts receivable and

ations of the Company for the years ended December 31,

payable to Affiliate partners in connection with the transfer

2006 and 2007.

Revenue
Operating income
Income before 
income taxes

Net Income
Earnings per 

2006

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

$278,042
103,706

$ 283,108
104,474

$ 280,440
102,059

$ 328,763
143,674

55,937
35,240

51,632
33,936

52,613
33,146

77,705
48,955

of Affiliate equity interests. As of December 31, 2006 and

2007, the total receivable (reported in “Other assets”) was

$18,365 and $35,510, respectively. The total payable as of

December  31,  2006  was  $42,364,  of  which  $41,086  is

included  in  current  liabilities.  The  total  payable  as  of

December  31,  2007  was  $70,915,  of  which  $69,952  is

included in current liabilities.

In certain cases, Affiliate management owners and Company

share—diluted

$

0.81

$

0.86

$

0.87

$

1.21

officers may serve as trustees or directors of certain mutual

funds from which the Affiliate earns advisory fee revenue.

2007

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

$309,837
112,302

$ 331,464
123,944

$ 345,605
127,620

$382,960
167,749

58,130
36,622

66,487
41,887

67,596
42,585

96,614
60,867

Revenue
Operating income
Income before 
income taxes

Net Income
Earnings per 

share—diluted

$

0.93

$

1.04

$

1.07

$

1.53

In each of the quarters in 2007, the Company experienced

an increase in revenue (and consequently operating income,

income before income taxes, Net Income and Earnings per

share) from the same period in 2006, primarily as a result

of the growth in assets under management resulting from

positive investment performance and cash flows and, to a

lesser  extent,  from  the  Company’s  investments  in  new

Affiliates  in  2006  and  2007.  In  addition,  the  Company

earns  the  majority  of  its  performance  fees  in  the  fourth

quarter  of  each  year,  resulting  in  higher  revenue  and  Net

Income when compared to earlier quarters.

25

Summarized Financial Information
of Equity Method Affiliates

The following table presents summarized financial informa-

tion for Affiliates accounted for under the equity method.

2005

2006

2007

Revenue(1)(2)

Net Income

$ 1,031,024

$1,476,488

$ 747,240

276,470

485,959

214,876

Current assets(2)

Noncurrent assets

Current liabilities

Noncurrent liabilities

and minority interest(2)

2006

2007

$7,386,894

$ 9,306,440

159,699

147,511

1,731,477

2,368,160

5,170,993

6,679,065

(1) Revenue includes advisory fees for asset management services, invest-
ment income and gains and losses on investments from consolidated
investment partnerships.

(2) In  the  2007  investments  in  BlueMountain  and  ValueAct,  the
Company acquired a share of revenue but no portion of the assets held
by investors that are unrelated to the Company (which include consol-
idated investment partnerships).

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The Company’s share of undistributed earnings from equity

Revenue  earned  from  client  relationships  managed  by

method  investments  totaled  $32,154  as  of  December  31,

Affiliates  accounted  for  under  the  equity  method  is  not

2007. This footnote has been amended for changes to the

consolidated  with  the  Company’s  reported  revenue  but

historical financial statements of an equity method Affiliate.

instead  is  included  (net  of  operating  expenses,  including

Such  changes  had  no  impact  on  the  Company’s  financial

amortization)  in  “Income  from  equity  method  invest-

position or results of operations.

26

Segment Information

ments,” and reported in the distribution channel in which

the Affiliate operates. Income tax attributable to the profits

of  the  Company’s  equity  method  Affiliates  is  reported

within the Company’s consolidated income tax provision.

Financial Accounting Standard No. 131, “Disclosures about

Segments  of  an  Enterprise  and  Related  Information”  (“FAS

In  firms  with  revenue  sharing  arrangements,  a  certain  per-

131”) establishes disclosure requirements relating to operating

centage of revenue is allocated for use by management of an

segments  in  annual  and  interim  financial  statements.

Affiliate  in  paying  operating  expenses  of  that  Affiliate,

Management has assessed the requirements of FAS 131 and

including salaries and bonuses, and is called an “Operating

determined  that  the  Company  operates  in  three  business

Allocation.”  In  reporting  segment  operating  expenses,

segments  representing the Company’s three principal distri-

Affiliate expenses are allocated to a particular segment on a

bution  channels:  Mutual  Fund,  Institutional  and  High  Net

pro rata basis with respect to the revenue generated by that

Worth, each of which has different client relationships.

Affiliate  in  such  segment.  Generally,  as  revenue  increases,

additional  compensation  is  typically  paid  to  Affiliate  man-

Revenue in the Mutual Fund distribution channel is earned

agement partners from the Operating Allocation. As a result,

from  advisory  and  sub-advisory  relationships  with  all

the  contractual  expense  allocation  pursuant  to  a  revenue

domestically registered investment products as well as non-

sharing arrangement may result in the characterization of any

institutional  investment  products  that  are  registered

growth  in  profit  margin  beyond  the  Company’s  Owners’

abroad. Revenue in the Institutional distribution channel is

Allocation  as  an  operating  expense.  All  other  operating

earned  from  relationships  with  foundations  and  endow-

expenses  (excluding  intangible  amortization)  and  interest

ments, defined benefit and defined contribution plans and

expense have been allocated to segments based on the pro-

Taft-Hartley plans. Revenue in the High Net Worth distri-

portion  of  cash  flow  distributions  reported  by  Affiliates  in

bution  channel  is  earned  from  relationships  with  wealthy

each segment.

individuals, family trusts and managed account programs.

83

2005

Revenue
Operating expenses: 

Depreciation and other amortization
Other operating expenses

Operating income
Non-operating (income) and expenses: 

Investment and other income
Income from equity method investments
Investment income from Affiliate investments in partnerships
Interest expense

Income before minority interest and income taxes
Minority interest
Income before income taxes
Income taxes
Net Income
Total assets
Goodwill

2006

Revenue
Operating expenses: 

Depreciation and amortization
Other operating expenses

Operating income
Non-operating (income) and expenses: 

Investment and other income
Income from equity method investments
Investment income from Affiliate investments in partnerships
Interest expense

Income before minority interest and income taxes
Minority interest
Minority interest in Affiliate investments in partnerships
Income before income taxes
Income taxes
Net Income
Total assets
Goodwill

2007

Revenue
Operating expenses: 

Depreciation and amortization
Other operating expenses

Operating income
Non-operating (income) and expenses: 

Investment and other income
Income from equity method investments
Investment income from Affiliate investments in partnerships
Interest expense

Income before minority interest and income taxes
Minority interest
Minority interest in Affiliate investments in partnerships
Income before income taxes
Income taxes
Net Income
Total assets
Goodwill

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Mutual 
Fund

Institutional

$ 400,859

$ 385,681

4,185
235,795
239,980
160,879

(4,379)
(516)
—
15,657
10,762
150,117
(59,658)
90,459
33,674
$ 56,785
$ 873,386
$ 437,309

17,863
231,779
249,642
136,039

(3,797)
(25,719)
—
17,264
(12,252)
148,291
(66,616)
81,675
30,386
$
51,289
$ 1,106,187
$ 445,609

High Net
Worth

$ 129,952

9,854
81,961
91,815
38,137

(695)
(735)
(445)
4,505
2,630
35,507
(17,989)
17,518
6,523
$ 10,995
$ 342,063
$ 210,331

Total

$ 916,492

31,902
549,535
581,437
335,055

(8,871)
(26,970)
(445)
37,426
1,140
333,915
(144,263)
189,652
70,583
$ 119,069
$ 2,321,636
$ 1,093,249

$ 501,739

$ 514,761

$ 153,853

$ 1,170,353

6,734
291,571
298,305
203,434

(7,088)
(1,087)
—
24,360
16,185
187,249
(80,333)
—
106,916
38,869
$ 68,047
$ 898,150
$  454,561

22,511
295,733
318,244
196,517

(6,584)
(34,503)
—
27,606
(13,481)
209,998
(106,536)
—
103,462
37,715
$
65,747
$ 1,279,981
$  504,068

6,896
92,995
99,891
53,962

(3,271)
(2,728)
(3,400)
6,834
(2,565)
56,527
(25,654)
(3,364)
27,509
10,026
$ 17,483
$ 487,789
$ 218,598

36,141
680,299
716,440
453,913

(16,943)
(38,318)
(3,400)
58,800
139
453,774
(212,523)
(3,364)
237,887
86,610
$ 151,277
$ 2,665,920
$ 1,177,227

$ 558,257

$ 645,613

$ 165,996

$ 1,369,866

10,356 
317,582 
327,938 
230,319 

(7,121) 
(1,651) 

—
28,317 
19,545 
210,774 
(95,720) 

—
115,054 
42,570 
$ 72,484 
$ 986,308
$ 474,335

23,543
381,165
404,708
240,905

(6,587)
(51,214)
(10)
38,772
(19,039)
259,944
(120,506)
(10)
139,428 
51,589 
$
87,839
$ 1,832,951
$ 529,195

8,198 
97,407 
105,605 
60,391 

(3,425) 
(5,332) 
(38,867) 
9,830 
(37,794) 
98,185 
(25,761) 
(38,079) 
34,345 
12,707 
$ 21,638 
$ 576,446
$ 226,857 

42,097
796,154
838,251
531,615

(17,133)
(58,197)
(38,877)
76,919
(37,288)
568,903
(241,987)
(38,089)
288,827
106,866
$ 181,961
$ 3,395,705
$ 1,230,387

 
 
 
 
As  of  December  31,  2005,  equity  method  investments  of

convert  their  securities  into  shares  of  the  Company’s

$8,717,  $282,189  and  $10,570  are  included  in  the  total

common  stock  and  the  $300,000  principal  amount  was

assets  of  the  Mutual  Fund,  Institutional  and  High  Net

reclassified to stockholders’ equity. Pursuant to these conver-

Worth  segments,  respectively.  As  of  December  31,  2006,

sions and other privately negotiated exchanges, the Company

equity  method  investments  of  $6,451,  $273,170  and

will issue approximately 7.0 million shares of common stock

$13,819 are included in the total assets of the Mutual Fund,

and all of the Company’s floating rate convertible securities

Institutional and High Net Worth segments, respectively. As

will be cancelled and retired.

of  December  31,  2007,  equity  method  investments  of

$8,704,  $755,107  and  $78,679  are  included  in  the  total

In the first quarter of 2008, the Company repurchased the

assets  of  the  Mutual  Fund,  Institutional  and  High  Net

outstanding  senior  notes  component  of  its  2004  PRIDES.

Worth segments, respectively.

27

Subsequent Events

The repurchase proceeds were used by the original holders to

fulfill  their  obligations  under  the  related  forward  equity

purchase contracts. Pursuant to the settlement of the forward

equity  purchase  contracts  and  other  privately  negotiated

In  the  first  quarter  of  2008,  the  Company  called  the  out-

exchanges,  the  Company  has  issued  approximately  4.0

standing floating rate convertible securities for redemption at

million shares of common stock. All of the Company’s 2004

their principal amount plus accrued and unpaid interest. In

PRIDES securities have been cancelled and retired.

lieu of redemption, substantially all of the holders elected to

85

Common Stock and Corporate Organization Information

Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities

Issuer Purchases of Equity Securities

Our  common  stock  is  traded  on  the  New  York  Stock

Exchange  (symbol:  AMG). The  following  table  sets  forth

the high and low prices as reported on the New York Stock

Exchange  composite  tape  since  January  1,  2006  for  the

periods indicated.

Period 

Total
Number
of Shares
Purchased(1)

October 1–31, 2007 1,673,300
November 1–30, 2007 115,000
42,005
December 1–31, 2007

Average
Price
Paid
Per Share

$ 130.66
$ 126.31
$ 92.15

Total
Number
of Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs(2)

Maximum
Number of
Shares that
May Yet Be
Purchased
Under
the Plans or
Programs(3)

95,000
115,000

1,995,106
1,880,106
— 1,880,106

2006

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

2007

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

High

Low

$ 108.58

$ 79.58

107.46

101.81

105.97

81.56

84.00

92.09

Total

1,830,305

$ 129.50

210,000

1,880,106

(1) In October 2007, we agreed to purchase 1,578,300 shares of our com-
mon stock pursuant to a prepaid forward purchase contract which we
may  elect  to  settle  at  any  time  on  or  before  October  15,  2012.  In
December  2007,  we  received  42,005  shares  of  common  stock  upon
the settlement of certain of our call spread option agreements.

(2) Notes  19  and  21  to  the  Consolidated  Financial  Statements  provide
additional detail with respect to our share repurchase programs.

(3) As of February 26, 2008, there were 1,780,106 shares that could be

$ 119.78

$ 103.00

purchased under our share repurchase programs.

131.84

135.02

136.51

106.70

98.67

114.15

Employees and Corporate Organization

As of December 31, 2007, we employed approximately 80

persons  and  our  Affiliates  employed  approximately  1,500

persons,  the  substantial  majority  of  which  were  full-time

employees. Neither we nor any of our Affiliates is subject to

any  collective  bargaining  agreements,  and  we  believe  that

our labor relations are good. We were formed in 1993 as a

corporation under the laws of the State of Delaware.

The  closing  price  for  a  share  of  our  common  stock  as

reported on the New York Stock Exchange composite tape

on  February  26,  2008  was  $98.88.  As  of  February  26,

2008, there were 39 stockholders of record.

We have not declared a cash dividend with respect to the

periods presented. We do not anticipate paying cash divi-

dends on our common stock as we intend to retain earnings

to  finance  investments  in  new  Affiliates,  repay  indebted-

ness, pay interest and income taxes, repurchase debt securi-

ties and shares of our common stock when appropriate, and

develop our existing business. Furthermore, our credit facil-

ity  prohibits  us  from  making  cash  dividend  payments  to

our stockholders.

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86

 
 
 
 
Endnotes

Notes to Financial Highlights

(1) Cash Net Income is deﬁned as Net Income plus amortization and deferred taxes related to intangible assets plus Afﬁliate depreciation. AMG’s use of
Cash Net Income, including a reconciliation to Net Income, is discussed in “Management’s Discussion and Analysis of Financial Condition and Results
of Operations.” 

(2) Earnings before interest expense, income taxes, depreciation and amortization.

(3) Cash Net Income (as described in Note 1, above) divided by the adjusted diluted average shares outstanding (see Note 4 below).

(4) In the calculation of adjusted diluted average shares outstanding, the potential share issuance in connection with the Company’s convertible securities
measures net shares using a “treasury stock” method. Under this method, only the net number of shares of common stock equal to the value of the
contingently  convertible  securities  and  the  junior  convertible  trust  preferred  securities  in  excess  of  par,  if  any,  are  deemed  to  be  outstanding. The
Company believes the inclusion of net shares under a treasury stock method best reflects the beneﬁt of the increase in available capital resources (which
could be used to repurchase shares of common stock) that occurs when these securities are converted and the Company is relieved of its debt obligation.
This method does not take into account any increase or decrease in the Company’s cost of capital in an assumed conversion.

Other Notes

(1) Unless otherwise noted, data presented is as of December 31, 2007.

(2) Investment product and performance information has been provided by each Afﬁliate to AMG, and is provided in this Annual Report for reference
purposes only and not for investment or solicitation purposes. The investment performance of Afﬁliate products is compared to benchmarks deemed
by the Afﬁliates and AMG to be the appropriate benchmarks for such products. 

87

Corporate Data

Corporate Offices
Afﬁliated Managers Group, Inc.
600 Hale Street
Prides Crossing, Massachusetts 01965
617 747 3300
www.amg.com

Independent Registered Public 
Accounting Firm
PricewaterhouseCoopers LLP
Boston, Massachusetts

Transfer Agent and Registrar
LaSalle Bank NA
Chicago, Illinois

Stock Exchange Listing
New York Stock Exchange
Ticker Symbol: AMG

Annual Meeting
The Annual Meeting of Stockholders will be held
at AMG’s ofﬁces in Prides Crossing, Massachusetts, on
June 3, 2008.

Form 10-K and Management Certifications
Copies of the Company’s Annual Report on
Form 10-K ﬁled with the Securities and Exchange
Commission, including the certiﬁcations required 
by Section 302 of the Sarbanes-Oxley Act 
with respect to the Company’s ﬁscal year ended 
December 31, 2007, may be obtained without 
charge by requesting them from:

Investor Relations
Afﬁliated Managers Group, Inc.
600 Hale Street
Prides Crossing, Massachusetts 01965
ir@amg.com

This Annual Report to Stockholders contains
forward-looking statements. There are a number 
of important factors that could cause AMG’s actual
results to differ materially from those indicated by
such forward-looking statements including, but not
limited to, those listed elsewhere in this Annual 
Report and in the Section titled “Business-Risk Factors”
in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2007 as ﬁled
with the Securities and Exchange Commission.

On July 2, 2007, AMG’s Section 303A Annual 
CEO certification by Sean M. Healey was filed with 
the NYSE in accordance with Section 303A.12(a).

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Board of Directors

Richard E. Floor
Partner,
Goodwin Procter LLP

Sean M. Healey
President and 
Chief Executive Ofﬁcer

Harold J. Meyerman
Former Senior Executive,
The Chase Manhattan Bank and
First Interstate Bank, Ltd.

William J. Nutt
Chairman

Rita M. Rodriguez
Former Director,
Export-Import Bank 
of the United States

Patrick T. Ryan
Former Chief 
Executive Ofﬁcer,
PolyMedica Corporation

Jide J. Zeitlin
Former General Partner,
Goldman, Sachs & Co.

Executive Officers

Sean M. Healey
President and 
Chief Executive Ofﬁcer

Darrell W. Crate
Executive Vice President and 
Chief Financial Ofﬁcer

Nathaniel Dalton
Executive Vice President and 
Chief Operating Officer

Jay C. Horgen
Executive Vice President, 
New Investments

John Kingston, lll
Executive Vice President and
General Counsel

 
 
 
 
Affiliated Managers Group, Inc.

600 Hale Street
Prides Crossing, MA 01965
617 747 3300
www.amg.com