Morningstar Drops Alliance Warning

February 5, 2004 (—Morningstar Inc. removed its "consider selling" recommendation on AllianceBernstein mutual funds Thursday, noting changes the company has made in an effort to improve operations.

Alliance is the first company, of nine funds, to be removed from the “consider selling” list since Morningstar began adding fund companies as they got swept into the trading scandal.   Seven other funds were given the more lenient designation of “don’t send new money.”

Morningstar said it improved its recommendation on Alliance because the company has worked to remedy problems such as high fees, a history of inappropriate fund launches, aggressive sales culture, and the market timing allegations, Dow Jones reported.

At the end of last year Alliance reached a settlement with regulators in which the company will set aside $250 million in a separate fund to compensate mutual fund investors harmed by the improper market-timing activity.   The restitution fund, which was agreed on by the SEC and Spitzer’s office, will include $150 million as disgorgement of profits and a $100 million penalty (see  Alliance, Regulators Reach Settlement ).

Alliance faced net redemption of $2.2 billion from its retail funds during the fourth quarter, according to Dow Jones.

The fund companies that remain on the “consider selling” list are: Fred Alger Management, Heartland Advisors Inc., Invesco Funds unit of Amvescap PLC, Janus Capital Group , Massachusetts Financial Services Co., Bank of America Corp.’s Nations Funds, Bank One Corp.’s One Group, Pilgrim Baxter & Associates and Strong Financial Corp.