AMG

Business Context and Reporting Period

Affiliated Managers Group, Inc. (AMG) is an asset management company with equity investments in a diverse group of mid-sized investment management firms ("Affiliates"). The company operates through three principal distribution channels: Mutual Fund, Institutional, and High Net Worth. As of June 30, 2006, AMG managed approximately $202.3 billion in assets across more than 300 investment products.

This summary covers the quarterly period ended June 30, 2006, as reported in Form 10-Q.

Key Financial Metrics

Note: Debt figures exclude mandatory convertible securities and junior convertible trust preferred securities, which management does not consider debt for leverage ratio purposes.

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 36% ($74.9 million) for the quarter and 37% ($151.3 million) for the six months compared to the prior year periods. This growth was driven by a 50% increase in average assets under management (AUM) for the quarter and 47% for the six months.
• Profitability: Net Income rose 29% for the quarter and 34% for the six months. Operating income increased 38% for the quarter and 39% for the six months.
• Expense Increases: Total operating expenses increased 35% for the quarter and 36% for the six months. Compensation and related expenses rose 43% in both periods, largely due to revenue-sharing arrangements with Affiliates and expenses from new 2005 investments.
• Interest Expense: Interest expense surged 78% for the quarter and 60% for the six months, primarily due to the issuance of $300 million in junior convertible trust preferred securities in April 2006 and higher borrowings under the senior revolving credit facility.
• Assets Under Management: Total AUM grew from $184.3 billion at year-end 2005 to $202.3 billion at June 30, 2006, driven by positive investment performance ($9.3 billion) and net client cash flows ($8.7 billion).

Guidance, Outlook, and Risks

Management Commentary: Management attributes growth to positive investment performance, successful 2005 investments in new Affiliates (including First Asset Management Inc.), and positive net client cash flows. The company utilizes a "Cash Net Income" non-GAAP measure, which increased 19% for the quarter and 23% for the six months, to evaluate operating performance before non-cash intangible amortization.

Capital Allocation: The company continues to repurchase common stock. During the six months ended June 30, 2006, AMG repurchased approximately 4.0 million shares. In July 2006, the Board approved an additional program to repurchase up to 5% of outstanding shares.

Risks and Contingencies:

• Market Sensitivity: Performance is directly affected by global financial market conditions; declines in equity markets could reduce advisory fees and operating results.
• Capital Requirements: The company may need to raise capital to finance new investments or fulfill obligations to purchase retained equity interests from Affiliate managers. Potential future purchases of Affiliate equity could total approximately $1.25 billion if all triggering events occurred.
• Accounting Changes: AMG is evaluating the impact of adopting FASB Interpretation No. 48 (FIN 48) regarding uncertainty in income taxes, effective Q1 2007.

Investor Verification Checklist

• Debt Structure: Verify the terms and conversion triggers for the $300 million junior convertible trust preferred securities issued in April 2006 and the $300 million mandatory convertible securities (2004 PRIDES).
• Equity Method Investments: Confirm the impact of equity method accounting on reported revenue, as revenue from these Affiliates is not consolidated but reported as "Income from equity method investments."
• Share Repurchases: Monitor the execution of the newly authorized share repurchase program approved in July 2006 and its impact on diluted share count.
• Affiliate Equity Obligations: Assess the potential cash outflow required for the purchase of retained equity interests from Affiliate managers, estimated at $1.25 billion in aggregate if all conditions were met.
• Intangible Amortization: Review the reconciliation of Net Income to Cash Net Income to understand the magnitude of non-cash intangible amortization expenses.