AllianceBernstein Holding LP (AB) 2003 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Alliance Capital fourth quarter and full-year 2003 earnings review. At this time, all participants are in a listen-only mode. After the former remarks, there will be a question and answer session. And I will give instructions on how to ask questions at that time. As a reminder, this conference is being recorded and will be replayed for one week. I would now like to turn the conference over to the host for this call, the Director of Investor Relations for Alliance Capital, Miss Valerie Hartel. Please go ahead.

Thank you. Good evening, everyone. And welcome to our fourth quarter call. As a reminder this conference call is being webcast and is supported by a slide presentation that can be found on our website, at alliancecapital.com. Presenting our quarterly results today, are Alliance Capital's, Chief Executive Officer, Lou Sanders,and Chief Operating Officer, Jerry Lieberman. Both Bruce Calvert, Chairman, and Bob Joseph, CFO, are available to answer your questions. I would like to take this opportunity to note that some of the information we present today may be forward-looking in nature and as such it is subject to SEC rules and regulations regarding disclosure. Our disclosure regarding forward-looking statements can be found on page 2 of our slide presentation. In light of SEC's regulation FD, management will be limited in responding to inquiries for investors and analysts in a nonpublic forum. Therefore we encourage you to ask all questions of a material nature on this call. At this time, I would like to turn the all cover to Jerry Lieberman.

Thank you, Valerie. And good afternoon to everyone on the call. For our regular callers and our new callers alike, I would like to point out that we've made a few changes from our previous call format, including changing the time of the call itself. We're having this call after the market closed, in response to a survey we did of the analysts that cover our firm and investors. And that your your overwhelming choice. Regular callers will also notice we've put our detailed investment performance charts and other detailed financial data in the back of the presentation for your reference. This way we retain the granularity and the transparency of our information, but our conference call and web cast will focus on the more important business issues, trends, strategies, and explaining any specific anomalies of the reporting period. With that said, we'll try to answer any questions that you raise.

Obviously for Alliance and its 4,000 employees, 2003 was a challenging year, it was also a year of many successes, both for our clients and our unit holders. Our investment performance across most of our services was excellent. Our new AUM flows and our financials remain strong. So let's start with how our clients did this last year, since that is the most important driver of our future success. Turning to display on page 3, you'll see that the market has treated us well in the fourth quarter, and more importantly this past year. The S&P 500 rose nearly 29% in '03. And after three years were value stocks far out-paced growth stocks, the two styles performed in a similar fashion in 2003. As far as our investment firm is concerned and our institutional channel, our three largest value services, plus our emerging value service, all beat their respective benchmarks in 2003 with our emerging markets and relative value services leading the way. Our three, five and ten-year records are all strong, with five of six services beating the benchmark by over 450 basis points in the three-year results. In our growth services despite returning more than 20%, our large-cap growth service significantly lagged the Russel, 1,000 index. Last year, this benchmark was led by lower quality, smaller cap stocks that are inconsistent with our largercap style. So keeping to that discipline, resulted in the shortfall.

Meanwhile our mid-cap growth, multi-cap growth, and small-cap growth services all outperformed their benchmarks in 2003. Over the long term, our clients earned premiums to the benchmarks in most of our growth services, especially small-cap international, large-cap and emerging market services. In our institutional fixed income services, we outperformed their benchmarks in nearly all of our major services during 2003. Results were especially strong in our emerging market, global and core plus portfolios, while our high-yield service underperformed. Our longer term results were also competitive. In our retail channel, value equities have a consistent story of returns that stack up extremely well against the benchmark averages. Both in 2003 and since we broadened our mutual fund lines will include these services in 2001. These portfolios coupled with the launch of our wealth strategies product line in September, effectively diversify our retail fund offerings and we're looking forward to the three-year anniversary of our value equity funds in just a few months. Our retail growth fund performance had a mixed picture which explains more than anything else the lackluster net sales results that we had for the last two years in the U.S. But our regent large cap core managed account, as well as our global, growth research, and our mid-cap growth, which had an extraordinary year of performance and small cap growth funds outpaced averages in their respective categories in '03. Similar to our institutional results nearly all of our major fixed income funds for retail out performed their respective (liper) in averages for the year.

And finally, if you were one of our private clients who held a balanced account, your portfolio would have been a global benchmark for the last one, three and five-year periods, which explains why our organic growth in this channel is in the double digits. With our performance numbers of the foundation, let's turn to how our assetts on the management net flows were for the past quarter as seen in our display on page 6. Here you can see how the quarters change in AUN shows the strength of our diversified franchise as well as our sales momentum, outside the retail channel. You can see that on our institutional investment management channel, we had $3 billion in net flows in the quarter. And this is in spite of losing $2.5 billion in mandates from one non-U.S. client primarily the result of a decision on asset allocation rebalancing. Adding market performance of $21 billion to the growth in this channel, assets grew just under 10% in the quarter. Our private client channel had still another quarter of net positive production. Our 12th in a row is our expanded sales force, the addition of new investment services to this channel over the past three years, and our success in wealth preservation served our clients well and increased the profitability of this franchise. Our investment performance contributed an additional $4 billion in AUM in this channel. Our retail channel had a billion in long term net redemptions, another $1 billion in net outflows in our cash management services.

Obviously the former was heard by the news over market timing issues. As well as performance related issues in certain growth and technology funds. The cash management outflow was a trend we have seen all year, as we lost some large relationships to industry consolidation by acquisitions. But we did add $10 billion in appreciation in our retail distribution channel, so even in retail, our AU increased in the quarter. Overall, our AUM was up $37 billion for the quarter. And can be seen on display on page 7. Nearly $25 billion of the $37 billion were on our value services.

Also, while growth services did experience net outflows, all of our investment services were up when we add in the market appreciation. Turning to our 12 months of activity on page 8, you can see that our private client channel had $4 billion in net new funds. That's 10% in net organic growth for the year. And our institutional had $10 billion for 5% in net organic growth. What you cannot see is that our retail channel had a record year in selling over $2 billion in our (INAUDIBLE) to non-U.S. clients. Overall our AUM was up $88 billion for the year with a net $14 billion in net flows in our institutional and private client channels. An $88 billion increase in AUM, that's about the size of Bernstein when we closed the merger. And finally, on the topic of new business, although not evident from the charts nearly $21 billion of our new institutional mandates were for non-U.S. services out of a total of $32 billion in gross sales and $22 billion was with non-U.S. clients. These metrics confirm our continuing success in becoming a more global firm from both an investment as well as a sales and services perspective. Looking at our investment services on display on page 9, we see that between net sales and appreciation our value services represented $56 billion of the $88 billion increase. And fixed income total $9 billion. A clear sign of how our investment services diversity is adding value to the firm.

Now, we've seen the flows and the market performance appreciation. Let's turn to an overview of our financial results starting on page 10 and see how our unit holders did. Obviously the main contribution to our quarter over quarter revenue increase is our base fee increase of 19.5% or $80 million. Which is generally in line with our increse in assets on the management. Our performance fees for the year are up $28 million. With all of that increased earned in this quarter and from four of our headstrong services, Advanced value, Global opportunity, Absolute return and Fixed income high grade strategy.

On page 11, our display breaks down the revenue growth by distribution channel. This is self-explanatory. But our private client growth rate of 52% and $57 million jumps off the page with $28 million of performance fees and 29 due to organic growth and investment. Our institutional research services had flat revenues for the quarter. A lot is going on in this franchise. Trading commissions for the industries were down when you exclude program trading so although we gained what we refer to as addressable market share and received excellent feedback on the quality of our research, our U.S. revenues are down. Meanwhile in the U.K., we're in the second year of operations. And albeit off of a small base, our revenues there are up 85% year-over-year and again we received accolades for the quality of our product. The other revenue line was up 85% or $9 million as we have market-to-market gains of deferred comp plans and feed money in new products.

Turning to expenses on page 12. Obviously our 43% or $213 million increase quarter-over-quarter is primarily due to our charge for the mutual fund matters and legal proceedings. I'll discuss the impact of the market timing charges in detail later, which of course are included in our financials following, generally accepted accounting principles. But we're comparing our expenses for this discussion, I would like to focus on our expenses before these charges. With the expense increase quarter-over-quarter is less than 15%, while our revenues grew 19%. Almost 75% of this increase is attributible to higher compensation. As you can see from the details of compensation--from our compensation of benefits analysis contained on page 13, this is primarily due to our increase in incentive compensation. Results from our $28 million increase in performance fees. And an increase in IC resulted from precharge earnings improvement. The variance in the commissions is due to a low-base figure in the fourth quarter of '02 when we decided in December of that year to fund $20 million of full year commissions from our IC pool, thereby reducing this expense and increasing our earnings.

Oh, yes. A couple of other items that explain our increased expenses, are higher legal fees and returning some software that wasn't fully advertised. I do want to take you through the impact of the market timing and legal charges, on page 14, we have broken out the impact of these charges set up in both the third and fourth quarters of 2003. And we have shown the resulting net reduction in cash compensation and income taxes from these charges. The net effects for the year is $284 million in net income at the operating partnership level and $1.11 per alliance holding unit. So the net earnings result for the year is displayed on page 15 is $1.01 with only 13 cents in the fourth quarter.

In wrapping up, our ending AUM was $475 billion an increase of $88 billion for 2003. The result of organic growth in both our private, client, and institutional asset management channels, coupled with favorable capital markets and investment performance. This starts us off with just under $1.9 billion in our annualized fee base. Up nearly 21%. Or $300 million better than last year at this time. And that's after including our recently implemented management fee reductions in U.S. retail mutual funds of approximately $70 million. Our settlement with the government officials and regulators, along with charges for related legal issues result in the suspension of distributions. But with market performances at the tail wind, sales momentum in two out of three channels, our team looks forward to improved environment in '04, the highlights of which Lou will discuss in his review, on key stategies and initiatives. Accordingly at this point, I'll turn the call over to Lou.

Thank you, Jerry. Let me take a moment to share with you my perspective on the fourth quarter. As well as some comments on our strategy and key initiatives in the period ahead. Fourth quarter was an extremely difficult time for our firm. Dominated by a number of business imperatives, including the resolution of the market timing matter with authorities. The installation of a new management team in our retail mutual fund business. The mandate to fundamentally reposition and restructure that business. Comprehensive communications with clients, with consultants, with prospects, to provide a clear view into the firm's actions as it responded to the market timing matter. Efforts to ensure that the firm stayed on course in pursuit of its various strategic initiatives. And efforts as well. Crucial efforts to ensure that the firm didn't lose its focus on its key mission. Delivering superior investment performance for our clients.

Measured in these terms, I think we can conclude it was a successful quarter. The agreements reached with the authorities in particular were an extremely important step in setting the company on the right course. They codify our commitment to compensate mutual fund shareholders who were adversely affected by inappropriate market timing in our mutual fund. They set us on a path to dramatically improve the value proposition to the mutual fund investor. The past we are committed to pursuing vigorously, beyond the management fee reduction set forth in the agreement with the New York AG. They introduced a series of structures, of reporting relationship. An external oversight that we think will move us toward a best in class position in the important area of compliance and controls. And finally, a dramatically enhanced mutual fund governance, including the independence of the mutual fund boards and their leadership, supported by senior compliance staff reporting to those boards with unfettered access to the firm's resources in this area. We're now hard at work, implementing these provisions as well as others called for in the agreements. We embrace them fully and believe the company will emerge a much better managed enterprise as a result.

And now hard at work, too, on the task of transforming our position in the retail mutual fund market. With the following priorities: First, lowering costs. With the benefits passed on to mutual fund shareholders and lower expense ratios and thus higher net returns. In keeping with this commitment, in addition to lowering management fees in our U.S. long term open end retail mutual funds as per the New York AG agreement, we lower transfer agency fees for the fourth quarter and anticipate that in 2004 such fees will be meaningfully lower than they were last year. Second, we plan to rationalize our U.S. mutual fund product array. Coherence and clarity of purpose is the objective of this rationalization. Product line will be organized into four groupings. Wealth strategy fund. They will be the foundation of our position in the market. They consist of a series of multiasset class, multistyle global funds, tax managed, systematically rebalanced, and configured to meet a range of risk return objectives.

We also have style pure funds in all the asset classes that can play a demonstrably useful role in well crafted investment plans. In addition we'll have high income funds. Particularly those that are multisector in design with the goal of moderating issue a specific sectoral and duration risks. And then finally, there will be the family of anchor to winwood fixed income funds where principle protection and/or liquidity is paramount. As we move to implement this configuration, we will likely need fewer funds than we currently have, which will simplify our marketing message and ultimately lower our costs. All funds will continue to be managed carefully to conform to their stated mandates. Thus, clients investing in the appropriate combination of our funds can benefit from their low or negatively correlated sources of alpha. As we've emphasized before, this is one of the most powerful features of our product array.

Third, we're going to strive to achieve industry leading transparency at the point of purchase and afterwards. We'll make every effort to ensure clients who invest with us understand the character of the services that they are buying, what they are paying for these services, how they can obtain volume discounts, how these costs compare to industry averages. What services they should expect from us and others in return. We hope to package this information in ways that investors can easily access and understand. Fourth, it is our goal to support our services with the most knowledgeable wholesale force in the industry as part of a broader effort to provide advisor and client access to the considerable research and advanced investment planning skills of our firm. Skills that we see as a major source of competitive advantage. So what's the bottom line? Is it we're intent on making the advisor and client experience with us unique? Productive for the advisor, satisfying for the client. Now, this transformation won't be accomplished quickly.

So no early upturn in our U.S. retail mutual fund business is anticipated. But we're confident this is the route to lasting success, since it is based upon the same foundation that has made our private client business one of the most effective in the industry. Let me emphasize, too, that while this transformation is proceeding, we expect continued growth in the other components of our retail business. Including annuities, offshore mutual funds and our managed accounts business. That ladder is particularly well positioned to grow in the period immediately ahead, as a function of strong prior period returns. And research initiatives just now reaching the market which we hope will bring considerable luster to our largest such service in this channel. It's all done to the Alliance Bernstein's reaching plan.

Turning now to our other businesses, we are pressing ahead with a multiyear expansion of our private client distribution footprint here in the U.S. We'll be opening offices in Tampa and Boston this year as we expand our field force from approximately 175 currently to 200 by year end. Over the next five years, we expect to enter another 12 markets as we drive our field force to some 350 in total. The same time we're continuing to invest in advanced wealth planning research. The goal of which is to improve still further on our ability to solve complex wealth management problems for clients. These capabilities continue to drive up the demographic profile of our business. With the ultra high network sector, that is relationships above $10 million, sourcing more than half of new business in 2003. Growth has remained strong as well in the institutional asset management area. Now, the story here rests principally on our global investment platforms in growth, value and fixed income. A capability which permits us to meet a broad array of local and global mandates for clients throughout the world.

Let me give you some examples. In 2003, we saw strength in local value services for U.K. clients. U.S. corporate fixed income services for Japanese and Korean clients. Style blend services for U.S. clients. Global growth services for European clients. Global value services for Australia clients. A mix of new mandates which I think clearly demonstrates the wide appeal that our global appeal platforms possess. Indeed, as Jerry noted, gross cash flow from all services exceeded $30 billion last year, some two thirds of which were from clients outside the United States. In fact assets under management from nine U.S. clients grew by almost 80% in 2003, reaching $94 billion at year end.

Consultant advocacy continues to improve, not only as a function of generally strong performance, but because we're seen as utilizing a common set of investment disciplines across geographies. Supported by extensive global research resources. Thus consultant support for value product in Japan, benefits from similar support already earned in the UK. This is a powerful factor given the increasingly global character of the pension consulting industry. In the new year, you'll see an expansion in marketing and client service resources in support of what we expect to be another good year of growth in our institutional asset managed business in most parts of the world. Our sales side research unit, Sanford C. Bernstein LLC performed relatively well in what was a pretty hostile setting for research services in the United States. A near doubling of the revenue in our U.K. operations for the year in total. And enthusiastic client acceptance of our OTC and program trading platforms, cushioned what otherwise would have been a sharp decline in revenues. And the important metrics of research quality, sales effectiveness, we continue to score extremely well. Moreover industry services which measure trading efficacy demonstrate that our capabilities are competitive here, with particularly impressive performance, I might add, by our OTC trading team.

Although the market for sell side services remains uncertain, we believe we're positioned to resume moderate growth in overall revenues in this business in 2004. The new year is also going to see the first manifestations of our strategy to become an acknowledged leader in research as an asset manager. Through initiatives launched last year, focused on strategic change, on early stage growth, and advanced quantitative methods we'll be using multiple venues to bring attention to this work, including published studies, speaking engagements, seminars, and our website. We see research innovation and its translation to superior investment performance as a critical priority for the firm. Fundamental building block for the firm. And you're going to see much from us on this front in 2004 and beyond. So with those comments and observations let's now open up this session for questions.

Thank you, ladies and gentlemen. If you have a question at this time, please press star then one on your touch tone phone. You would hear a tone indicating you have been placed in queue and you may remove yourself from queue at any time by pressing the pound key. If you're using a speaker phone. Please pick up the handset before pressing the numbers. Management has requested that you please limit your questions to two in order to provide all callers an opportunity to ask questions. We welcome you to return to the queue to ask follow-up questions. It is Alliance Capitals practice to take all questions in order in which they are received. And to enter the queue before ending the call. Once again, if you do have a question, please press star then one at this time. And please hold for our first question. Comes from the line of Mark Constant, Lehman Brothers. Please go ahead.

Good afternoon guys. A couple of questions for you. Number one the software write off and legal fees that were in the fourth quarter G&A, can you quantify that for us, please .

Yeah Mark, the software write off was roughly $4.5 million. And this is basically--in one case, old software that basically is no longer being utilized. So we basically retired it.

Okay.

On the legal side, it's mostly as you might expect -- I think as we've mentioned in the past, it is incrementally up about $6 million. And that's mostly a result --.

Year-over-year?

Year-over-year, quarter-over-quarter, especially the result of ongoing litigation that's not related necessarily to the market timing and mutual fund issues.

Okay. Okay. So it's not that it is not covered in the charges, that it is not related.

That's correct, unrelated.

And on the sort of client communication sentiment front, if you will, Lou, you made reference to, I think in the release, talks about consultant support as well. Just wanted to see one -- is it fair to suggest that your communications with them, you sort of have no regrets on? In other words that they weren't--your clients weren't surprised by things that they read in the newspaper, at least that were in the newspaper that were true? And that do you believe, is it fair to suggest similarly, on the retail side that they are just looking at the slow-down in that retail that the worst is past there from a market share standpoint as well?

Mark, far be it for me to characterize our client's perspective on this issue. Our goal was straightforward. It was to provide them with an open window, comprehensive communications, such that they could understand in depth the actions that we were taking to respond to this matter.

But you communicated to them what was coming out of the papers? I presume. I guess that's what I'm getting at. Were they finding out from the newspaper or finding out from you, at least the true parts?

Well, you know, once again, I don't know how to answer that question. All I can say is that our efforts were to communicate as quickly as was feasible what would be helpful for them to understand the actions that we were taking to properly respond to this matter. As I think you know, we addressed that not only through a communications program by meeting with clients but comprehensive financial disclosure in our 10Qs and in various press releases.

Okay. And the retail side? Sense of standing as a franchise mark share-wise.

I think it is evident that our market share remains quite depressed and that it will be a multiyear rebuilding effort before we restore our standing to levels that we would hope ultimately to achieve.

So the improvement in flow is probably more market sentiment related, than market shares, is that characterizing your response fairly?

I'm not sure how to describe it. I think your observation is correct. But I think it is also correct to assess our market share as quite depressed relative to our long-term potential and for that matter our history.

Fair enough. Okay. Thank you.

And we have a question from Bill Katz, Buckingham Research Group. Please go ahead.

Thank you very much. Good afternoon. Thank you for tightening up the differential between the release and the conference call. Greatly appreciated. Question is on, sort of the return on revenue outlook going forward. There's seemingly a lot of moving parts between the different distribution channels and restructure of the retail business and pricing. Just wondering if you could give us a sense of maybe a sort of two-part question. What are some of the baseline expense levels as you look out into '04. What do you think ultimately is the ability of return revenue for the business.

We're just not going to provide financial guidance of that kind on this call. I think you know that the financial results of firms like ours are dominated by capital market behavior, which in the very short run, owing to its volatility is unpredictable. And so we will have to leave it to your wisdom and insight to provide those forecasts.

Okay. Thank you. I think. Second question is --

Bill, we did try to point out the, you know, the one loss and unusual things in a quarter over quarter. So we're pretty clear with that.

Okay. Fair enough. If this doesn't count for the second question. Could you quantify what the EPS impact was for performance fees this quarter?

Well, the increase of the fees was $28 million bucks. Right?

Right.

And right? I mean that was the increase in the fees. The IC related to that we discussed in the past as far as what that would be. Is that okay?

That's fair enough. The other question I have is, and just in terms of your--the growth in the high net-worth business, over the next several years. Not in '04, is that all going to be (Denovo)? Or would you look to maybe enhance your growth rate via acquisition?

Very unlikely to be by acquisition. We think we have very substantial organic potential. I think a model that you might use to think this through, would be one that applies to retailing, I don't mean financial services but I mean any kind of consumer products. Where you have a format that has penetrated successfully, any number of markets of varying variety. But you have yet to enter all of those that actually meet your criteria. As you assess our standing on that score in the United States, we have many markets that have sufficient wealth densities to be attractive for us and that will be the basis of our multi-year growth plan.

Okay. Thanks very much, guys.

And we have a question from Ken Worthington, CIBC. Please go ahead.

Hi, good afternoon. You discussed rationalization and improvement in efficiency in the retail business. I believe that fees are being reduced immediately. What is sort of the timing of some of the rationalization that you discussed? Is that sort of a first quarter event? Or is that something we can expect later in the year?

I think you should expect it as a continuum over a period of time. Can't be precise about the duration of these actions. We're going to be very thoughtful about it. I think a way to interpret our strategy, is as I've tried to describe, that a low-cost position with regard to everything but intellectual capital is the objective of the firm. And on that score, it's to improve the value proposition to the client as opposed to the firm's profitability. I think ultimately, we'll be down to the benefit of the firm's profitability, because it will make the products more attractive, more competitive, and help us grow the business.

Thank you. And to the best of your knowledge are there still large institutional clients or consultants evaluating your involvement in the market timing issues, or do you believe that most have completed the process at this point.

I think it is fair to say that there are clients who are still carefully watching our actions with regard to resolving this matter. And I would anticipate that they will continue to do so until it is completely closed.

Okay. And with that question, did you have to reduce fees to any of your institutional clients to retain business?

The answer is no. And we don't anticipate having to make any such adjustments.

Thank you very much.

One moment for the next question. And we have a question from Cynthia Mayer with Merrill Lynch. Please go ahead.

Hi, good afternoon. Just a little question on performance fees. I'm wondering in terms of the growth assets whether they have high water mark issues or is it possible they could collect performance fees going-forward. And in that vain, could you just talk a little about how you see the hedge fund business going forward.

As you know, there are two kinds of performance fees. And there are, for example, some institutional accounts where there are no high watermarks. And the -- there's a possiblyity to earn performance fees. In the hedge fund areas, there are high watermarks. And those assets are relatively at the minimus at this point in time.

Okay. And in general in the hedge fund area, is that something you're looking to expand or just keep the funds you have in place.

No, I think that this is an area of interest for the firm. But in a very particular way. As a derivative of our core competencies. Where "hedge funds" provide us to amplify on our ability to generate alpha by more completely exploiting the information content that our research and investment management prophecies produce. So I think what you should anticipate from us is product innovation in this domain predicated once again on what we judge to be our key strengths. And I think you should anticipate as well that our private client channel will see some of the benefits of that product innovation.

Okay. And second question, it looked like the private client flows were down a little bit sequentially. Is that just a seasonal move? Or should we read something into that.

There's nothing to be read into that at all.

Okay. Thanks.

And we have a question from Mark Constant, Lehman Brothers. Please go ahead.

Okay. I just wanted to follow up with a couple of other numbers things. One I just missed it--well you were speaking quickly, Jerry: Is it 21 billion of 32 billion was it institutional growth sales were non-U.S. clients? What was the --

-one was an issue of product, the other was an issue of where the clients were down the side. 22 were non-U.S. clients.

22 were clients 21 are products that are dominantly non-U.S. securities.

Got it.

By the way the products total that focus on non-U.S. securities is 130 billion. And the client total is 94 billion at year-end. December. Both quite substantial.

Again, you're right. It is institutional. We have very little private client overseas as yet, although we're looking into it.

We have substantial retail, however,.

Yeah. Okay. And then finally the -- I know you're going to follow GAAP of course in terms of the treatment of this number. I know there wasn't much of a tax effect. Do you happen to have out to the thousands what the respective income tax items were in both the partnership and LP levels?

To the thousands of dollars? Not in front of us. Come on, we gave it to you in millions in the chart!

Valerie, if you could perhaps give me a quick call when you get off to make it through the other model, that would be great. Thank you.

We have a question from John Hall, Prudential Equity Group, Inc. Please go ahead.

Thank you very much. The changes that you're talking about as far as the retail funds go seem to be pretty broad, pretty sweeping and well contemplated. Were they on the board prior to the troubles? Seems like an awful lot to come up with in a short period of time?

Yeah, they were -- this was planned. I think you may know we launched our wealth strategy family of funds in September of 2003. And the planning for that began months before. And the idea that we would then taylor the product line underneath that umbrella if you will. Our foundation family funds was contemplated as well. And we will, we'll proceed with this at an orderly pace. I think what is worth emphasizing is that -- that almost all of the funds that will populate our ultimate product array are already in the market. And there are a few that are today still in the market that I think may find their way merged into, rationalized into a more appropriate mandate.

A rough reduction of 20% of the funds.

I don't think I can give you a number.

Does this also point toward lower staffing levels as well?

It may well. I think that ultimately the clarity of the marketing message, the utility of each product, from the perspective of potential investors, their relevance to a well-crafted investment plan, this is paramount in our thinking. But all of that makes your marketing message so much clearer, crisper, easier to communicate, which leads to efficiency. And naturally from an operational perspective, there are benefits to having fewer funds.

Lou, how have you tested these concepts against the traditional sellers of your product.

Well we have to report some success with our wealth strategies offering thus far. I think what is more relevant to us is a 30-year history, a success with these concepts in the private client arena. Now, it is true that those clients on average are far wealthier than the typical investor in a mutual fund. But, except at the very high end of the market, the requirements of these clients are very nearly the same. A good investment plan for $2 million net worth individual isn't terribly different than that for one who has $200,000, or for that matter $50,000. These are time-tested investment principles. And we're trying to bring that thinking, that technology, that wealth planning knowledge to the retail investor. And I don't anticipate that we will effectuate this transition and what we stand for quickly or easily, as I tried to emphasize. So we're not predicting any early turn, you know, on market shares. But we believe that we're on the right course. And we're going to be quite persevering in pursuing it.

Thank you very much.

If there are any any additional questions, please press star then one at this time. We do have a fallow up question from Bill Katz, Buckingham Research Group. Please go ahead.

Thanks for your patience. Lou, I'm wondering if there have been a lot of changes from a, sort of, a distribution perspective. I think Putnam was out and recently indicated they were going to look to cut the the distribution fees associated with A-shares, just came out on the tape.(INAUBIBLE) Try and waive the 12E1 fees on a small fund of theirs. So I was just really curious as to how you sort of see this sort of distribution issue sort of coming to a head, if you will? Do you think there are going to be meaningful changes in the price and structure or distribution side, or just more disclosure at the end of the day?

Well, there is certainly going to be more disclosure, Bill. I think it is called for, it is appropriate and we're going to be a primary actor, we hope, on that score. And surely responsive immediately to any regulatory requirements to achieve that end. As to whether that will ultimately result in lower fees is open to question. It may well. I mean, if, in fact the investor becomes more sensitized to this issue as it influences their net return and thus as a purchasing criteria, the cost of the funds both ongoing and at the point of purchase loom larger in investor choice, then I think the industry will respond to it. And I think you can see, that were that to eventuate, our strategy is geared towards success in that environment. And frankly, to the extent that it all comes together to improve the net investment return of the client, this is a good thing. So we embrace it completely.

Just to go back to your retail comparison, though, in your sense, are funds sold on performance or fees? Or do you see that sort of that value proposition among the retail client shifting, going forward with the great disclosure?

Well, look, I mean I think this is a speculative exercise now. But I think it is clear that the net return is influenced by the cost structure of a fund. And to the degree that it is lower, the probability of better returns is improved. I think it is the net return that matters, clearly. So investment performance is primary. It will always be primary. But for any given level of investment skill, lower costs are better. That's an axiom. That's a mathematical identity.

Sorry to belabor what seems to be an obvious point. Thank you.

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If there are no further questions, I believe that we would like to end the call. If there are questions that our analysts or investors have, they can call Investor Relations to follow up. Thank you very much.

Ladies and gentlemen that does conclude our conference for today. Thank you for your participation and forusing AT&T executive teleconference. You may now disconnect.