AllianceBernstein Holding LP (AB) 2002 Q2 法說會逐字稿

(Gap in Audio) Ms. Valerie Haertel. Please go ahead.

Thank you. Good afternoon. I'd like to welcome you to our second quarter earnings conference call. This call is being webcast and supported by slide presentation that can be found on our web site at Alliancecapital.com. Presenting our quarterly results will be Bruce Calvert, chairman and CEO; John Carifa, president and chief operating officer; Bruce Sanders, vice chairman, chief investment officer, Gary Lieberman, executive vice president, finance and operations, and Robert Joseph, senior VP and CFO will be in attendance and able to answer questions at the conclusion of the formal presentation. I'd like to note that some of the information we present today may be forward-looking statements in nature as such are subject to SEC regulations and disclosure. Our disclosure regarding forward-looking statements can be found on page 2 of our slide presentation. In light of SEC's regulation fair disclosure, management will be limited in responding to inquiries from investors and analyst in a nonpublic forum, therefore we encourage you to ask all questions of a material nature on this call. At this time I'd like to turn the call over to John - Bruce Calvert. My apologies.

Just to be clear, it is Bruce Calvert and let me just start on page 3 of our presentation by summarizing some of the key metrics of our performance for the second quarter and I'll also summarize some comparisons to year ago periods. As you well know from our press release assets under management at the end of June were under 400 billion dollars 50 billion or 10.7 percent decline from 462 billion a year ago. More than 100 percent of that change, some 57 billion, can be attributed to declines in the markets, market and price movements and we'll say more about that in a few moments. Obviously the other component of the change in AUM's net flows and for the 12 months we experienced seven billion in positive inflows, net new inflows, but for the second quarter on a stand-alone basis we experienced net outflows of 5.6 billion. More on the composition of that in a few moments. Our annualized fee base declined 11.1 percent to about a billion 7. Average AUM was down significantly less than point to point AUM or about four percent to 434 billion, given the pattern of market returns over the year. And reference were down in line with or slightly more than average AUM to 724 million. Operating expenses were flat, were down slightly a year ago as a net result of that was 170 million in operating income, down about 16 and a half percent from a year ago. If you'll turn with me to page 4 we'll look at the change in the composition of our business over the last year, both by investment orientation and client orientation and it's been fairly dramatic. Notably, under investment orientation, growth equities declined from 42 percent AUM a year ago to 33 percent at the end of June while fixed income and value equities increased as a share of AUM. By client orientation or distribution channel, the biggest change was retail declining from 39 percent of AUM to 36, while private client grew from eight to 10 percent of AUM institutional investment management was relatively unchanged. Now, most of this change in AUM mix was the result of trends in the market, or market declines. And where they occurred, as we'll see when we get to the 12 month AUM rollups, but before turning to those, if you'll just look at page 5, we'll take another quick look at the environment, which is one of the worst in memory. Over the last year the S and P is down 10 percent that's of course before the July declines. The Russell 1000 growth index was down almost 15 percent more or 27 percent, while value was down only, if only is the right word, nine percent. Only with bonds did you get a positive total return. Looking at the five-year period, it's in some ways almost even more incredible. The market is up almost 20 percent, but that's only 3.7 percent a year. One of the weaker five-year periods or one of the worst five-year periods in history. Over that five years growth stocks actually declined while value stocks increased at about six and a half percent a year. And with that as background, I think it's easier to look at and understand the AUM rollups for the 12 months, which begin on page 6. In growth, we had 13 billion dollars of net outflows, which was more than offset by 26 billion of net inflows to value and fixed income. When you factor in the passive business and the fixed income and the cash management business, excuse me, total net inflows were seven billion dollars. But as we already saw, this was swamped by a 57 billion dollar decline in values, such that total AUM dropped to 412 billion, a decline of 10.7 percent. I want to mention one other thing while we're on this page, because it may confuse those of you who are looking at some of the tables in the appendix. This 13 billion out of growth and 14 into value is not quite where it appears to be in the sense that there were about two and a half billion dollars, a little more than that of transfers from growth to value, as one of our large E cap portfolios went from being a growth portfolio to a blended portfolio of growth and value. And that same distortion, for those who are looking at the three month rollups, which we're not going to cover, but on page 46, in the appendix, that same two and a half billion dollar transfer should be noted. Turning from investment orientation to clientele or distribution channel, you can again see the impact of growth equities on these results. And the key factor, as we show on the bottom here, is the percentage of growth equities at beginning of period AUM. For example, if you look at the retail business, where we had almost 51 percent of assets under management at the beginning of the period, in growth portfolios, the decline in assets under management was 16.7 percent, notwithstanding the fact that there were no net outflows that we would break even in terms of flows, at least in our long-term business we did have some cash management outflows. Conversely, in institutional, where growth was a smaller share of AUM, the decline was 9.2 percent, and in the private client, where growth is a very small share of AUM and where we had very strong net inflows relative to beginning of period AUM, we actually had a 7.4 percent increase in assets under management. On page 8 we look again at our annualized fee base. And as we noted earlier, the trends just discussed resulted in an 11.1 percent decline from about 1.9 billion to about 1.7 billion in AFB. The table at the right contrasts the changes in AFB by distribution channel to the changes in assets under management. And I'll just make a few comments. In retail, it's really the comment that's already been made. The annualized fee base declined more than assets under management and that's primarily a result of growth being the higher priced products, generally the higher priced products in our retail channel and experiencing the largest market declines. In the institutional channel, you can see that the annualized fee based declined less than AUM. That's largely the result of declines in market values impacting trail fee rates. There's more break points in the institutional fee schedules. And finally in private client, while annualized fee basin creased in line with AUM, it was a little bit smaller increase reflecting primarily a change to a little bit more fixed income in the overall asset mix. And you can see all of those trends reflected at the basis point yield reorganizations on the table below. So with those trends as background, I'd like to turn it over to John Carifa who will quickly summarize or who will summarize the highlights of our financials for the quarter.

Bruce, I think quickly is correct. Let's turn to page 9, which is a summary of our second quarter results. As Bruce mentioned before, continued capital market declines, particularly in growth stocks, and as Bruce mentioned, which is our largest investment category in terms of assets under management decreased our average assets on the management for the quarter to 434 billion, again down four percent from a year ago. As a result, in spite of increased assets from net new business over the past 12 years, and growth in our institutional services business, the 12 months, we saw our overall revenues decline five percent from last year. Expenses went down slightly and our operating net income fell 17 percent. And when we look at the breakdown between base fee earnings and performance fee earnings, base fee earnings declined 14 percent and performance fee earnings, which is a small number, fell 51 percent. Display 10, we detailed our revenues by distribution channel. So if we dig down deeper into the revenues, you can once again see the impact of the growth stock exposure on the retail revenues, which declined 10 percent and then the positive impact of diversification on our other channels and sources of revenues. Revenues in our institutional business fell five percent with the severity of growth stock declines being mitigated by our exposure to fixed income and value stocks. And the impact as Bruce just said, the impact that the market decline was reduced because it impacts again trailing fee rates in our institutional business at the lowest part of the fee rate schedule. Private client revenues were up 20 percent to the strong relative performance as of diversification and robust new business and our institutional services business was up 10 percent as New York Stock exchange volumes were up, June market share, when we started to see increased business in Europe. And other revenues were impacted by lower interest, by lower interest rate environment. And then sequentially I'd like to point out that from the first quarter to second quarter there was little change in our revenues. They were actually up about three million dollars. And most of that is due to an extra calendar day during the quarter increasing the fees that we earn on our mutual fund products. On the next display, page 11, we detail our expenses which were flat year-over-year, in spite of as we mentioned in the past we made major resource commitments and initiatives in increasing our business in the private client institutional services business and also we have the amortization of the second traunch of the deferred compensation awards which were made in connection with the Bernstein acquisition that we've talked about during the last several quarters. Employee compensation and benefits expense was up four percent due to the addition deferred compensation amortization, offsetting the benefits of a reduced staff and lower incentive compensation resulting from lower earnings. Promotion and servicing was down four percent, as we continue to focus on reducing controllable expenses, like T and E, printing and other expense categories. And then finally our general and administrative expenses were up four percent, resulting really from a renewal of leases and additional space taken in on our New York headquarters to accommodate the Bernstein acquisition and the consolidation of front office activities out of (inaudible) into one location in New York. Then sequentially looking at the expense numbers, our expenses were up about six million dollars. A bunch of small items, one of which was an extra payroll day, which increased our expenses by a couple million dollars. Some small increases in legal and professional fees related to litigation. Timing on T and E items. And then actually we had an annual private client conference during the second quarter that we had some true (inaudible) on fox 29 distribution expenses. A lot of little items adding up to about six million dollars. The next display, on page 12, details our head count history over the past 18 months. And you can see over the year 2001 head count increased as we increased head count in our growing private client institutional services business. But since October of last year our head count has declined steadily with June 30th staffing levels falling below where we were a year ago. On page 13, we'll show you, this is a picture of the net distribution expense. Growth stock declines continue to have an adverse impact on our net distribution expense. Again distribution revenues are driven solely by assets under management. So as eight 81 continues to fall, as the markets decline, we see the revenues decline. The majority of the expenses, however, the amortization of deferred sales commissions is a fixed item. So our declining market environment we have earnings and market pressure. And obviously in aa rising market it becomes an earnings and margin contributor as it has in the past. On display 14, where we show you our margins, which have declined to 29.9 percent from 34.4 percent, as market declines have depressed again both fee and distribution revenues. And then finally, on page 15, the earnings of alliance holdings on a per unit basis. Again let's focus on the center of the page. We reported 59 cents of net operating earnings, which is a decline of 18 percent from last year and a penny less than the first quarter of this year. And we'll be distributing 58 cents per unit for the quarter. I'll now turn the call back over to Bruce.

I'd like to just in the remaining time review some of the trends in our individual businesses or distribution channels. Starting with retail on page 16. And I'll come back and forth to this page a little bit. But first let me discuss net outflows which were 4.7 billion in the quarter. And ask that you take a look at page 17 where we'll provide some of that detail. In our U.S. long-term fund business, we did have a billion dollars of net outflows. That was outflows in growth funds. But also inflows into value funds and fixed income funds. This is a pattern that was very consistent with industry trends. However, given the preponderance of growth funds in our mix, the flight from growth funds transfers to net outflows for us. Our Luxembourg funds continue to perform well and have good net sales, with particularly strong sales in Japan and Taiwan. The net outflow of a billion dollars in other U.S. reflects the closure of an EPDA (ph) portfolio you may recall this was our joint venture or our distribution partner, really, in Italy. This business is changing largely because of structural issues at EPDA and a change in their ownership and business. They closed a 1.2 billion dollar fund in July. So more than 100 percent of the net outflows. There will be another billion to billion two of net outflows from this same source in July. I think I said July twice. It should have been June and there will be another billion two in July. The renewable annuity business continues to be in the black. And in terms of net flows, and the managed accounts business experienced net outflows despite good performance. You may have recalled that a year ago that we changed investment teams there. We launched an investment team. The new investment team has had good relative results, better than the S and P 500 in the core region product. They've generally been rerated positively by the consulting divisions of the distributors. But people are simply interested in more conservative product at this point in time, so we've continued to experience net outflows. As already noted, we have about 2.9 billion in outflows in the cash management business, which primarily reflects the loss of a distributor in our channel which in turn reflects consolidation in the industry. Turning back to page 16, I would summarize our investment results in the retail channel for the quarter as generally speaking an improvement in growth portfolios or as stabilization to improvement. Mixed results were valued but very strong long-term results. It was a tough quarter for credit sensitive product. But some of our other fixed income portfolios did reasonably well. Again, to look at that in a little more detail, if you'll turn to page 18, we show the results versus peer group averages for our growth equity retail funds. And I'm going to focus primarily on the one year line. Note that we still have tough comparisons in premiere growth which is our largest fund on a one and three year basis. With the recent fund has stabilized and we have very high conviction here based on the very long-term institutional record of al Harrison and his team and the longer term record of this which is between five and ten years that this process is consistently to provide functions and will produce good long-term results. It has great long-term results on the institutional side, as we'll see in a moment. But outside of premiere growth where I think there's been some stabilization in the results, we had very good results on a relative basis in our other major growth portfolios, included a turn around where we transitioned a team a couple years ago in the growth fund, which we're comparing to the growth peer group, even though (inaudible) is still comparing that to more of a core group. So reasonable stability in growth. On the other hand, I think it's obvious that we now, retail investors aren't particularly interested in relative focus on growth, they're trend following toward lower volatility strategies that have performed better over the last couple of months and the last couple of years, both value and fixed income. But relative performance will matter when growth stocks start to perform. On the value side, on page 19, in our newer products, which were generally all the alliance Bernstein products, value, small cap value, international value and global value, we had a terrific first year. And sales continued to build in these products. Growth and income experienced a difficult year. That's a relative value product. But the long-term results continue to be very competitive. Going back just for a moment to page 16, to describe some of our other initiatives, I think one of our priorities is simply to defend the growth franchise, which is under some pressure, and we're doing that clearly by focusing on intensely on improving relative performance. But also simply on being visible with the clients and continuing to tell the growth story and the evolving opportunity in growth from a valuation point of view and how growth will serve their interests, continue to have it in their portfolio. Meanwhile, we also are marketing the Alliance Bernstein value funds. We did a relaunch on the one year anniversary, which is continuing. We've raised a billion 7 since inception, as I said earlier the sales there generally continue to build. We also have a launch of seven new products, four on shore, four offshore. This will include a couple of growth disciplines that heretofore have only been institutional disciplines. It will also include bringing global growth trends, which has been a big success overseas into our on shorelinup. It will include our first blend product in the growth value blend in the U.S.. And finally we're very focused on expanding our managed account penetration. We have some new product launches there. But we've also deepened our sales force in a sense that a number of our traditional wholesalers are now also involved in selling managed account product. If we could skip ahead then to page 20, just a couple of comments on our institutional business. We have net outflows of two and a half billion. And I think that it bears some explanation. If you'll turn to page 21, this graphic is a little bit confusing. And hopefully in my effort to simplify it I'm not about to make it more confusing. But the first four numbers that you see there were flows resulting from accounts won and lost. But in addition to that, under other, we have simply cash outflows and inflows from clients who continue to be clients. To make this a little bit more transparent, by investment discipline, I'm going to do some combining here and report to you that of the two and a half billion of outflows, 2.6 billion of it was in index funds. In other words, taking the accounts won and lost and cash flows together which totals 2.5 billion outflow, we have 2.6 billion outflows in low fee index funds which primarily was the result of a rebalancing by a very important state retirement client, who continues to be a very significant client. In the growth area, we have three billion of outflows, roughly in total. 1.2 billion of that was a global growth portfolio, managed for an overseas client which happens to be a trend following client which is an important client. That was impacted substantially by the North Carolina, by the safe fund rebalancing. And we also had a line down of our old, divestiture of our old Hudson River group, which resulted in a come of account terminations after Tyler Smith retired earlier this year. Those outflows were partially on offset by about three billion dollars of fixed income inflows across a wide range of products. And by a modest amount of net value inflow. In terms of - that was the pattern for business funded during the quarter. But if you look at funded and disfunded, page 22, you can see our new account wins during the quarter, not all of which have been funded. Total of 55 wins, some 3.3 billion in expected or actual AUM. And again a very good spread across investment disciplines and a very good spread between U.S. and nonU.S. clients. 27 new U.S. clients. 28 new non-U.S. clients, including attractive wins in growth and value and fixed income. The competitive performance position here on page 23 I think is very good. Here you see the large cap growth record which had a good quarter, which is very competitive over all time periods through ten years. And is also very competitive over 20 years. And you'll see that with the exception of disciplined growth, we're again performanced at a little better in the second quarter and the long-term performance is okay. All of the growth products are performing well, relative to benchmarks on a one-year basis. This is a much more important metric in the institutional business. In value, the pattern is very similar to the pattern that we've discussed in retail. On a one-year basis, the value products are generally doing very well compared to their benchmarks, with the exception of relative value, which is the same discipline we discussed in growth and income. But again the long-term results there are very, very competitive. In terms of initiatives in this business, we really are just simply continuing to focus on the consulting community as it expands globally, expanding with us, expanding our global presence, but we're also expanding our product line. Japan value became fully into existence this quarter. And we were taking global growth trends I already mentioned that we're bringing into the U.S. as a retail product. But we also have our first institutional client for global growth trends and we're optimistic about marketing that product which is has a very competitive long-term record. On page 25, if we turn to the private client business, we had a very strong quarter with a billion six in net inflows. We had about 700 new client relationships. We now have about 19,000 clients altogether. There was a very successful hedge fund launch last quarter. 170 million in AUM and off to a very good performance start. And we've expanded the plans to increase our hedge fund family into the private client business next year. The driver of the business is really relative performance. Recall here that while all accounts are managed to a client's individual circumstances, if we were to just create an average portfolio, it would look something like 40 percent fixed income, 40 percent plus in U.S. equities and about 18 percent in nonU.S. equities, both of which are either slightly up or prior now about flat. But the end of June 30 were slightly up for the year along with the bonds. So if you look at performance going back to the turn in the market from being a growth to a value market, if you look at the average performance for all of our balanced accounts it's up 15.6 percent, compared to a decline of 25 percent for the market. This year it's down two percent compared to a 13 percent decline for the market. Which puts us in a very competitive position. And we're seeing it in the numbers. Finally, the institutional research business continues to perform well. As John already said, the revenue growth is being driven by three factors. Higher New York Stock Exchange volume. Higher market share. About 10 basis points. I'm sorry, about 18 basis points. And higher revenues in the UK. That's slightly offset or that's slightly offset by some pricing pressure on a per share basis. We successfully transitioned the U.S. strategy coverage in May, after Michael Goldstein left the firm. And we're off to a very good start with (inaudible). We've initiated coverage in three incremental industries. And finally we've started, we're launching an OTC training program which we believe is an opportunity for us to further increase revenues in the third quarter of this year.

We'll trying to give a little bit where things stand overall and a little bit what the end of the year looks like or what the year looks like. You know, at the point end of June, had we assumed no material recovery in the equity markets, and modest net business inflows, which was our model, coming primarily from institutional and private client with break even or very small net outflows in retail, we would have modelled a number that was slightly below the range of street estimates at that time. Obviously we continue to be in a very risk adverse environments. The markets have performed significantly on the downside in July. And if there's no reversal in markets, that clearly will have an impact on the business. But these are the toughest markets that we've dealt with since '73 and '74. And it's hard to pinpoint where and when they'll bottom. But we know that it will happen and we're trying to keep that in mind as we manage the business. We're focused on relative performance. We're focused on expense management. But in the context of our net new business flows, more so than what's happening in the markets, which we don't believe will be of very long duration. And we have improved on the performance side and feel comfortable about our competitive position over time. So while we don't want to forecast the bottom in the markets, neither do we want to panic over the markets. And we believe our competitive position is strong. With that said, we would be happy to try to answer your questions 00:34:02 or listen to your comments.

And ladies and gentlemen, if you do have a question at this time, please press the 1 on your touchtone telephone. You'll hear a tone indicating you've been placed in queue. You may reFOF yourself from queue at any time by pressing pound key. Once again, if you do have a question press the 1 at this time. Our first question is from the line of Guy Moszkowski. Please go ahead, from Salomon Smith Barney.

Good afternoon it's actually Brian Badeaux (ph). Guy had to step out for a second. Let's start with the decline in the market, really and what's going on there. Can you tell me what you're seeing in terms of rebalancing from equities? Are the people making the decisions and the consultants revisiting their broad long-term allocations to fixed income equity in a major way and how do you think that would impact you? Also, in this space, just of the 3.3 billion, what portion is not funded yet, and also to what degree do you think you'll benefit from an increase in the overall contributions now that significant portion of plans are under funded and I'll ask more questions on the income statement.

This is Lou Stanley. (Inaudible) I think that our assumptions are, and I think they're supported thus far by field input, is that asset allocation is unlikely to change from policy, which is noteworthy in that it suggests a number of rebalancing actions that could be material in terms of cash flow by asset type. First, since equity is significantly underperforming fixed income for a sustained period, equity allocations are primarily flowing from some plans below policy and reallocation back to equities think is a likely outcome in the coming quarters. In addition since value has outperformed growth in an unprecedented fashion in the last two and a half, three years it's our assumption they'll be rebalancing in the direction of growth, taking back some share from value. And as to the cross border relationships, there I wouldn't predict any material change because the performance across geography with the exception of a merging market has not been especially note worthy. The final point I would make is that apparent to almost everyone that funding status of the CD market in the U.S. has deteriorated quite dramatically. In the past two years. From very substantial net surpluses to now probably in aggregate in a net deficit which suggests that any number of companies who are in a position worse than the average will soon have to revisit cash flow contributions which have been out for years in this market. We actually expect to see some positive cash flows, kind of a preverse positives given the hostile circumstances we face in the capital market.

Hello?

I think your other question related to how much of the 3.2 billion has been funded.

Right.

I don't think we have an exact number for you there

Okay.

If you want to call, we'll try to get that or we'll put it out.

Also, in this space, has the institutional sales forces of alliance and Bernstein been merged or are they merging or are you keeping that completely separate?

They were combined from the outset.

Okay. Switching gears a little bit to the private client business. Let's see the 82 basis point fee, is that just the advisory space or there's a commission on top of that and what would be the bundle for that service.

I'm sorry, your question is on the private client?

Yes.

Fee realizations.

Yeah, the fee realizations. I you have I forget which pages on the slide you used.

That's correct. It's sources. It's a number that various a little bit from quarter to quarter. But the vast majority is it from fees.

On the - so all that including commissions is sort of prefer the private client business the average utilization rates are around that 82?

Yes.

And then within the Bernstein product space of the three major core products relative to values, compared to diversified value. In a ballpark sense, not exact numbers, of those three products, how would you split up the AUM in terms of what their mix is or how important it is the strategic value is out of this.

Well, relative value is important in the retail channel. That's the growth and income fund. It is not significant in the institutional channel. Value in the retail channel is a relatively new product and is building. In the institutional channel, diversified value is roughly twice as important as strategic value.

So that's the big one in the institutional channel.

Yeah, private clients is strategic value.

Okay. I understand. And the private client fees are beginning up from the beginning - correct, in that channel?

That's correct.

In the institutional channel, it's essentially mostly average?

No.

It varies.

It's a mixture. (Inaudible) basically use average AUM or simple AUM?

Probably could.

Just a comment on the EPDA (ph) relationship. Is this essentially after this next 1.2 million that will be it with that and what they done in terms of a different relationship or essentially why are they doing this?

They internalized the billion two we talked about this quarter. Again, I have the primarily the result of corporate change there. And we don't exactly what they're going to do with the balance of it. But there was a fee request that we chose not to compete for.

That makes sense I guess they're trying to capture the fees in the entire product line.

Meanwhile, yeah, we will start to distribute our other products in Italy which are we've nondone because of the EPDA relationship.

You're talking about Luxembourg.

Primarily.

What do you think so far for 4th of July if you have any indication, mutual fund is the one you see the quickest.

It's pretty much a continuation of what we saw in the second quarter. We're seeing net redemptions. In the growth space, primarily.

Okay. I'm sorry, just a couple more questions. The performances, for this particular quarter, which products were the source of those fees, and could you comment on the next two quarters, maybe a range of performances that we'd likely have seen if they're high water marks that they were under or anything like that?

Brian, we'll have to move on and let some other people have a chance to answer questions, but just to respond to that, we're not materially changing our performance fee forecast at this point in time. There are substantial cross currents there in terms of new asset flows and some funds that are performing well, good performance on another large bundle, slightly less good than it was recently and so on. But suffice it to say we're not making a material change at this point in time, the large change in our forecast.

I just want to add that don't think that performances are completely related to absolute returns. There are many structured in relative terms.

Thanks very much.

Our next question is from the lines of William (inaudible) from Merrill Lynch.

Good afternoon. I'll try to be a little briefer. I'm curious on your comments on your outlook for expense management and curious what would be your contingency plan if these kind of hostile markets don't subside in the near term. And on top of that if you sort of make the agreement we're sort of back to 72, 74, unprecedented waters. The potential for slower growth more of a shift to absolute performance, I'm curious if you're a little bit myopic in terms of expense management. If we go down this road of depressed markets for a while what do you think about your margins and incremental cost reduction initiatives.

Again, I think we've said what we tried to do is look at expenses, we expect whatever else happens we expect markets to be volatile and we expect them over long periods of time to have an upward bias. And without going into a long discussion of it not much has happened to change us caused us to change that view. There that context we tend to focus on what's the real growth in our underlying business. How many new clients have to be serviced. What quality service do we want them to be. Make a gross assumption that markets work themselves out both on the upside and downside. So the one thing I would say is that if flows were to deteriorate, if net flows were to deteriorate, we would certainly respond on the expense side. That would be one trigger. But I don't think we have a number that we want to say if the do you goes to X or the S and P goes to why, that we'd do the following on expenses.

You talked in your - you have a pretty goodies closure on disbursement by account type. In light you lost some sort of bulky accounts this quarter can you dimension for us maybe your distribution by distribution type, if you will. Any sort of outsized concentration issues that we should think about from an emergent perspective or internalization perspective as well. (Inaudible) broker dealer community, what have you.

Well, I think not. First of all, private client in our institutional distribution is direct. It's our own sales forces where we sell through intermediaries in the retail business, and I'm not sure that - I suppose it's possible that there could be a merger that would impact our sales, but I don't think it's very likely. The one business where this has been an ongoing risk part of the business for as long as we've been in it is the money market business. Where overthe last 15 years from time to time distributors get acquired and do something else with their assets.

Just two quick follow-ups. Today there's been no real evidence of any kind of pricing pressure other than the larger managed coming on for the margin. Curious, any thoughts in terms of pricing pressure from some of the monies you're actually managing, where performance has been more volatile? Have you seen any kind of pushback from clients?

I don't think anything we would want to generalize or talk about. I'm not sure we've seen any. I think as a general population I wouldn't disagree that you're more subject to that when times are tough. But when they're blooming in terms of relative performance. But I'll remind you that generally our relative performance is reasonably good.

Last question. Your stocks came in pretty significantly over the past couple of weeks. How are you thinking about capital management going forward?

Well, I think we're going to talk about a lot of those issues. But I think again given the instruction of the MLP, which has its pluses and minuses but we think the pluses outweigh the minuses, there's probably some limits on anything that we might do. So I wouldn't encourage anybody to look for anything dramatic in terms of change in the way we're allocating our capital.

Just bear in mind that the shareholders, the unit shares are tax $on their share of the earnings of the partnership. Whether or not we make a distribution. So basically they're going to be taxed on the earnings whether we make a distribution or not. So it's a loan risk to reduce distribution for the sake of purchasing units.

We've been the distribution you're now running about twice the normal rate?

Yes.

Thank you very much.

Next question from Ken Rood (ph) with CIBC.

To make this clear is there any indication that you would cut the parent ratio on the dividend?

It's not in our plan.

Would you have generated net cash inflows into your institutional business if we excluded the two clients that you highlighted in the press release?

I highlighted three. And it would be about break even.

Thank you. And (inaudible) concerns of the pension rate clients now how are you addressing those issues?

I think the concerns of the pension fund clients are always first and foremost relative performance. And I think we address them the same way we always address them, by trying to demonstrate consistency, continuity of people, consistency of philosophy and purpose. Consistency of investment process. Consistency of resource commitment. And try to build with them a joint belief that we'll continue to provide good relative performance. I think that's key for the institutional clients.

All right. And then lastly, pricing pressure, research fees, can you talk a little bit about what's going on there and if you see this as circular or cyclical.

It's very definitely circular. Prices have been falling in the institutional research business every single year since 1975.

How much of a decline did you see in the last quarter?

It's not a noteworthy acceleration. In fact if you were to graph it, it looks as if it's gradually takes them to a relatively low per share figure. But the rate of descent is not accelerated.

It was worthy of highlighting on the conference call, right?

I think we were just trying to give a balanced picture of the trends in that business.

The revenue growth there was actually note worthy given the market conditions. And Bruce was merely pointing out while our share was up and volume was up there was some revenue drag. But not anything but different than, different than modern recent history than price erosion.

That's all I was looking for.

Our next question is from the line Mark Constant (ph) with Lehman Brothers.

Good afternoon. Couple things. One I don't want to read too much into your words. But Bruce you talked about if your flows were to accelerate you would review expenses and I think Lou said something about July flow patterns being consistent with the second quarter. I'm trying to get a better sense for the first derivative there and presumably June was less favorable than April and May I'm wondering if you can characterize July vis-a-vis June. I.e., have you seen an acceleration of redemption activity or net reduction.

I want to first of all say looking at expenses and they were down on a year-over-year bases. Flat or down a little bit. And I guess we would characterize the flows in the retail business, if you're just looking at U.S. long-term flows, as John said, the net flows are a little bit worse in July than they were in the second quarter. But I wouldn't make a huge thing of it. On the other hand, I think in the institutional area and in the private client space, we have every reason to believe, as I said, or we expect to have positive flows in the second half. Does that answer your question?

Yes. And with respect to the two and a half billion dollar transfer, that cash flow line which I assume mostly incorporates what most other people refer to in the asset reconciliation as exchanges, it never seems to come up to zero. And you still have exchanging across client bases, too, which isn't necessarily consistent with saying customer changes. I'm just trying to better understand that line item, how it differs from what the rest of the industry refers to as exchanges so I can understand the two and a half billion.

It's not only exchanges. You also have particularly on the institutional side of the business, cash flow into and out of existing relationships.

So if an existing institutional client took money out, you wouldn't call that a redemption, you'd call it a cash outflow.

Right.

That explains it.

If you have a client that as a billion dollars they want to rebalance a couple hundred million they take it out.

I understood. I thought it was in terms of redemption but it's in terms of flow cash flow. I understand that. The EPDA (inaudible) post in July, how much is still at risk?

It's not at risk, it's gone. But probably about a billion one. A bill.

That's all gone as of the end of July?

It could wind up not happening until early August, but essentially, yes.

There's been speculation about a pretty significant U.S.A. A outsourcing if you will sub advisory prospect that you've been mentioned in. Is that something you can talk about competing for or not.

I don't think we can comment on that.

And lastly does redemption increases to the extent they're visible, does that boost your distribution margin the way you account for it there?

No, the biggest impact on the distribution margin relates as I said before to market direction.

Right I have it. I wanted to see if there was a bit of offset in terms of redemption.

Not really. Not meaningful.

Thank you very much.

The next question is from John Howell, Prudential Securities.

I was wondering if you could just say if there's been any kind of material change that you're going about accruing for bonus in the environment this year. And is there anything notable on the legal front that we should know about?

I think the answer is no and no.

I'm sorry, was there an addendum to that?

No. Maybe we're not answering your question, but I thought you were looking for short answers. No, there isn't a difference in the way we're -

You're continuing to accrue bonuses in the market that we've got right now -

Wait, wait. Our bonuses are accrued as a share of profits. So if profits go down, our bonus pool goes down. But there's no difference in the way we're calculating them or accruing them.

That's why I mentioned before that that increase in amortization relating to the deferred compensation awarded in the Bernstein transaction, which is a noncash item offset the decline in the head count, the impact, the positive impact of the head count reduction, as well as lower incentive compensation resulting from lower operating earnings.

Bruce, in your commentary, to some guidance, I guess, I'm not sure I know what number you're talking about. Does that existing range, what was that?

Well, I don't have it in front of me. But I want to say it was something like 230 to 250.

Okay. So your comment is that then you were thinking you were below that and now we're even farther below what you were thinking then?

We were thinking we were right at the low end or that range. And obviously July has changed that.

Absolutely. Thank you.

I should add that again I repeat there's no assumption in that comment for any kind of recovery of markets

Our next question are from the line of Robert Lee with Keefer Robert and Woods (ph).

Two quick questions. I want to make sure I understand something correctly in the income statement. (Inaudible) advisory fees, distribution fees were all pretty stable or flat subsequently even though there was a decline in average assets, obviously. Is that solely due to the one extra day in the period or was there something else?

No, it was basically the one extra day in the period.

The second question is, a lot of outflows and retails come out of your growth equity products, which if I remember correctly, at least through the late '90s, maybe 2,000, a fair amount of those sales took place in B shares. And with the increased redemptions there, decline in assets, is there any pending recoverability issue that may be starting to rear its head?

No, we obviously look at that very closely, periodically, and no, we don't have a concern.

That was it. Thank you.

Now I'd like to turn call back over to Ms. Valerie Haertel. Please go ahead.

Thank you very much for joining the call today if you have any further questions please feel free to call the investor relations department. Thanks again and have a great day.

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