Andrea Prochniak - Director, IR Peter Kraus - Chairman and CEO Ed Farrell - Controller and Interim CFO Jim Gingrich - Chief Operating Officer

Michael Kim - Sandler O'Neill Steve Fullerton - Citigroup Chris Spahr - CLSA Cynthia Mayer - Bank of America Merrill Lynch Marc Irizarry - Goldman Sachs Michael Kim - Sandler O'Neill

Welcome to the AllianceBernstein first quarter 2012 earnings review. (Operator Instructions) I would now like to turn the conference over to the host for this call, the Director of Investor Relations for AllianceBernstein, Ms. Andrea Prochniak. Please go ahead.

Thank you. Good morning, everyone, and welcome to our first quarter 2012 earnings review. As a reminder, this conference call is being webcast and accompanied by a slide presentation that can be found in the Investor Relations section of our website. Our Chairman and CEO, Peter Kraus; and our Controller and Interim CFO, Ed Farrell, will present our financial results today. Our new Chief Operating Officer, Jim Gingrich, is with us as well and will participate in the question-and-answer portion of this call. Now I' like to point out the cautions regarding forward-looking statements on Slide 2 of our presentation. Some of the information we present today is forward-looking and subject to certain SEC rules and regulations regarding disclosure. You can also find our cautions regarding forward-looking statements in the MD&A of our 2011 Form 10-K in an our first quarter 2012 Form 10-Q which we filed this morning. I'd also like to remind you that under Regulation FD, management may only address questions of a material nature from the investment community in a public forum. So please ask all such questions during this call. Now, I'll turn the call over to Peter.

Thanks, Andrea, and thanks everybody for joining for our first quarter earnings call. As Andrea noted, I will go business highlights, Ed will then go with the financials and our COO, Jim Gingrich who is here as well will join Ed and I for questions at the end. Let's start the morning with Slide 3. In a more constructive operating environment, we were able to deliver better investment preference for our clients and much stronger financial results this quarter than last. Gross sales were $18.1 billion and were up 21% from the fourth quarter of 2011 and 15% from the same period last year. That is our highest since the second quarter of 2010 when sales were $18.8 billion, very close to this quarter's number. Net outflows were down versus prior periods and that includes the impact of last years AXA asset sales which I will discuss in a moment. AUM increased 3% from yearend 2011 due to both, market appreciation and net new flows to retail, a business that performed extremely well in the first quarter. Our retail strength is clear from the distribution channel view on Slide 4, should we take a look. Retail gross sales of $12.9 billion were 81% higher than the fourth quarter and 66% higher than 2011s quarterly average. This is our best retail sales quarter since the second quarter of '07 when sales were $13.6 billion, again pretty close to this years' level. While Asia remains our strongest market, we had growth across regions, asset classes and both new and long standing products. As a result, retail had net inflows of $2.3 billion, our first positive flow quarter since early 2010 when inflows were $2.5 billion. Inflows would have been stronger were not for about $600 million in redemptions related to prior year…

Thank you, Peter. Before getting into the first quarter financials, earlier this morning we reported GAAP earnings and distributions of $0.26 per unit. I'm going to begin by reviewing our adjusted financials in a high level on Slide 12. Then I'll go into more around the major variances in the coming slide. Adjusted revenues increases sequentially in the first quarter as a results of improved operating conditions but decline versus the prior year period. Adjusted expenses declined both sequentially and year-on-year. For the first quarter, our adjusted operating margins were 18%, an improvement from 7% in Q4 2011 but down four percentage points from Q1 2011. Adjusted earnings per unit were $0.29 in Q1, up $0.22 sequentially and down $0.12 from the prior year period. Now I will review our GAAP income statement on Slide 13. Quarterly net revenues of $682 million improved 9% sequentially versus the prior year period revenues decline 10% from $755 million. Operating expenses of $581 declined 50% for Q4 and 6% from Q1 2011. It is important to remember that the sequentially variances in our GAAP metrics are largely driven by fourth quarter $587 non-cash charge related to the acceleration of our deferred compensation orders and the true-ups of the 2011 full year compensation ratio. Net income for the first quarter was $87 million. Now I'll review our quarterly revenue to more detail on Slide 14. Base fees increased by $7 million or 2% sequentially, this is inline with the increase in average AUM shown on the earlier slide. Bernstein research revenues improved $14 million or 16% from prior quarter as of trading activity improved in all regions where we operate. We had investments gains of $31 million in the first quarter versus $3 million in losses in Q4 2011. The gains were in our…

(Operator Instructions) Your first question comes from the line of Michael Kim.

First, one of your competitors is rumored to be in the market to divest its private client business as maybe they view it as somewhat of non-core segment in terms of how they're trying to position their franchise. I know you view your private client business differently. So can you just talk about how you see that business evolving and where you're gaining traction or market share?

Look, our private client business is absolutely essential and critical to our firmwide efforts. It has been a long-term part of the firm. It is essential to our philosophy of service in clients. We think we actually provided service to individual clients' stage unique in the industry. And we've talked about that many times during the earnings call. We see that business as a growth opportunity for us in United States overtime. And I cannot imagine, AllianceBernstein not having the private client business and not continuing to grow it. It's just so essential to integrate into our advice and into sort of the way in which we intend to manage our clients well overtime. So I think any opportunities for us to grow that business including, adding by acquisition although it's hard to do and unusual. This is something that we would continue to pursue and continue to think about. So you know from our perspective, we see the private client business as a core business of the firm, a unique set of activities and products and services that we provide in the marketplace, unique competition and one that we think will grow handsomely overtime.

And then, just in terms of cost, you continue to streamline the expense base, I'm just curious as how you're thinking about incremental savings from here maybe as it relates to occupancy or G&A and then just your expectations for headcount going forward?

I think as we indicated last time, we still while we're making progress, we still have a lot of work to do in occupancy and other parts of our non-compensation cost structure. So it's unfortunate that that work takes time. So as Peter and Ed indicated, while we're making progress in the current quarter in terms of sub-leased in existing space that will only show up in 2013. But I would anticipate that we will continue to make slow but steady progress across our entire non-compensation cost structure. With respect to headcount, I think that we feel good about where we're at. We've made progress in the first quarter. A lot of tough decisions were made but it's something that we always will continue to take a look at, again, as we've indicated in the past to make sure that our headcounts are lined with revenue.

Your next question comes from the line of Bill Katz.

This is Steve Fullerton filling in for Bill. I was wondering if you guys can give some color around volumes in private client, thus far into the second quarter and what's going to take to get the positive flows in private client.

In terms of private client flows, for April we'll probably have some information flayed in next few weeks as you know we do put out our monthly asset flow information. I think private client flows in general have not been in positive over the last few years reflecting the challenged performance that we've had. I think we've continually though show strong inflows in the business, in other words, it's not as if we're not actually adding new clients. And I think that as the performance of base or the poor performance of base and as some of these new strategies that we put in place, in particular in strategic equity, strategy becomes known to our clients and prospects. But we expect that that will do two things, one alleviate some of the outflow that has occurred because of the challenged performance in '08, '10 '11, but also add new clients because as we said in the discussion, we really believe what we're providing clients is unique. And one of the most difficult things in the private clients business is differentiating yourself. Many of the services look very similar and what I think is special about the Bernstein prodivate client business is what we offer clients is truly unique and I think that that will have dividends over time.

And just one follow-up, what should be using for normalize G&A moving forward?

I would use the number about $130 million going forward and as Jim mentioned earlier, as we continue to make some decisions with real-estate that that number will go down but it will trail in future periods.

Your next question comes from the line of Chris Spahr.

I'm just wondering about this strong relative performance, if that's continued into April versus the first quarter?

Well, you know we don't obviously disclose all of the institutional accounts, the Lipper information you can and that is public, but most of our products continue to perform well into April. The large cap equity products have done less well but still have maintained most of there relative positions, relative peers, that is. The fixed comp products continue to do well and specialty equity products continue to do well. April, obviously was challenging month in the market and so obviously challenged investors all over the world.

And just making sure, you've been expecting a good rebound into your three numbers as the weak '08, '09 performance rolls off, but it's not really clear that's going to be the case at least in large cap with the one year numbers. I mean what is your current take on your relative performance for the three years?

I think we've mentioned to you that we were going to have a six month period where our numbers would look actually pretty attractive, because as you recall in '09, we had significant out performance from the market bottom. I think it was March 9, '09 to sometime in early 2010. And if that was going to create positive, very positive performance for us on a relative basis, but that wasn't going to last, because of course the latter part of 2010 and 2011 were challenged for us. So I don't have the numbers in front of me, Chris but I would expect that what's going to be relevant for us is our performance in 2012 going forward and not bank upon the fact that our three year numbers didn't look particularly strong, because we know we had a challenged 2011. By the way that comment is specific to the large cap equity services. That's not the case for many of the small cap services and specialty services and equity. It is not the case for fixed income.

Your next question comes from the line of Cynthia Mayer.

Maybe just a follow-up on that, since the Small and SMID are doing so well, could you break out about how many assets those are?

I don't have them it front of my fingertips. But we'll try to get that information to you, Cynthia.

And then, looking at Slide 4, it looked like the retail gross sales were up and private client was down a little bit but not much, but institutional challenged gross sales really fell off, where did you see the drop off there, which product?

I think as we noticed that CRS sales were light in the quarter compared to previous quarters when they were much stronger. CRS sales and defined contribution sales tend to be lumpy. There are large corporate plans that assigned mandates episodically effectively throughout the year. And when they do they're actually quite large when they happen. And that was the major reason why the first quarter was lower.

And then maybe one more product question if I may, which is it looks like the overseas sales for the Global High Yield and American Income funds were doing really well. Are those hedged or they viewed at all as products for overseas investors to get dollar disposure.

Some of those products are hedged. Our currency risk in this products are substantially lesser or smaller than some of the competitive products. That is one of the competitive advantages we think we have in that space.

Is that the main reason you think you're doing well versus competitors or just anything else we should take a look at?

We think there returns are more consistent overtime to more volatile markets. And we think people want consistency in returns and they want yield. And those products provide both. And they also are unconstrained buying products. So they allow the portfolio managers to allocate to what the portfolio managers sees as relative value in the fixed income markets and that allow us to return want to be more stable and as we have performed the last few years, those returns be attractive. So I think that the products consistency in both levels of volatility and return have actually attracted lots of investors to that space.

And lastly, are AXA shifts and outflows over by now?

There is I think some money that will go out in the balance of the year. And I don't remember the exact number, but maybe it does

In June we anticipated about $2 billion out and then we jumped fast forward and we got to 2015 and there is another approximately $2 billion then.

Your next question comes from the line of Marc Irizarry.

Peter, thank for the disclosure around the gross sales by region on a gross basis. Can you give a little bit of perspective in terms of those markets, what's happening maybe with retail, redemptions in the U.S. versus the rest of the world?

Let's just separate the growth of the marketplace from what's happening to AllianceBernstein. I'm not going to comment on marketplace. You know those numbers better than I. What's happening for us in retail around the world is we continue to have significant penetration and success in Asia, as you can see, all over Asia. We've done I think a very effective job at building the brand and having, as said earlier, consistent products. And we don't see absent market changes. The markets remain as they are. I think that we are comfortable in our position in Asia and think that what we've produced there in terms of gross sales will be consistent. The opportunity for us is Europe and United States where our penetration has been less. And I think that some of the momentum that we're looking to build in the future will come from those two markets as we do a better job with a broader set of services in the U.S. marketplace and in the European marketplace. I'm sure you noticed in our fixed income activities, we actually launched an ad campaign, somewhat unusual for us, launched that fixed income called codebreakers. And I think that there is a hell lot of excitement around it for us and a lot of excitement around it for the wholesaling force and the FAs who utilize our products. So I guess I'd just leave you with the impression, Mark, that we think that there is positive momentum in that retail space in the U.S. and Europe and that it's pretty much business as usual which has been quite good for us in Asia.

Just in the first quarter institutional business like AXA-related down-flows. Were there some maybe seasonal or annual sort of rebalancing that happened this quarter with institutions that you can maybe dimension some, or is that something that maybe we won't see going forward? Was there any sort of annual rebalancing that might have happened within the institutional world?

Well, as I mentioned to Cynthia in response to her question that the levels are lower in institutional in the first quarter versus other quarters due to the CRS fundings in prior quarters which we didn't have as many of in the first quarter. So that relates to level. As it relates to the tenure of the market, if that's your question, what's going on institutional space, for us we have seen the RFP activity. As you can see in the pipeline, that pipeline number has largely it has been, at least since I came to the firm. So I think that those are interest signs that probably reflect some increased momentum and attractiveness of the AllianceBernstein investment platform. On a general note what's going on in institutions in terms of how they allocate their assets, I don't think we've seen a point of inflection where institutions decided now they're going to take more risk. I still think that in the defined benefit world there is a consistent glide towards de-risking either in the form of less active management, more fixed income, more LDI, but a sort of persistent de-risking in the defined benefit market principally in the private side in the corporate world. In the public side, I think it's less pronounced and a willingness there to continue to have a risk element in the portfolio. In the defined contribution side, I think it looks pretty much like the retail market, meaning that there is probably less risk taking than there has been in history. And in the retail markets, you've seen the equity outflows as much as I have. That continues to be a market that is shunning risk.

Your next question comes from the line of Michael Kim.

Can you maybe quantify the G&A cost savings you expect to realize next year just relative to the current $130 million run rate you mentioned earlier?

That's a fair question, but we're not going to project out what we think we're going to do next year with any sort of quantifiable numbers that you would find useful. But you should know that, as we've said, we're going to continue to work on this and to reduce those expenses and that we would expect that that will produce a better margin over time.

I think last quarter you mentioned something like 5% to 10%. Is that sort of reasonable?

Again, Michael, we don't normally provide that type of guidance. I think as Peter said, we don't think our current margin levels are acceptable and we're going to continue to work hard to improve them.

We have no further questions at this time. We'll turn the call back over to our presenters.

Thanks everyone for participating in the call today. If you have any further questions, please feel free to contact me and the Investor Relations. Thanks and have a great day.

This concludes today's conference call. You may now disconnect.